International Trade-Methodology II

By Alfonso Llanes

January 10, 2017

Abstract

In following with previous papers on international trade technology, this paper will focus on the issues related to bulk trade of commodities and exchanges such as the Baltic Exchange for contract bidding of freight carriage. Ocean is by volume the largest mover of commodities and finished goods around the world in dry, liquid or containerized cargo. Navigable rivers as well as intra-costal waterways serve as the feeder means to major ports that serve the continental trade across oceans also known as blue waters such as the Mississippi river which runs through the heartland of grain production to ports in the Gulf of Mexico for export. Other important assets to the waterborne connections are the canals and the straits that become the limiting factors to the size of ships needing to get thru either because water depth or passage girth. A good example of this is the intra-coastal canal system that runs around the fan that forms the US Gulf of Mexico except Florida, and the eastern seaboard. 

INTRODUCTION

The International Monetary Fund (IMF) publishes a weekly tracking of market exchanges and trade specifications for X-spot prices. With this information traders can then contract a carrier via the Baltic Exchange and a delivery price to a buyer can then be quoted to complete the trade. A note of importance that must be considered is that most of these trades are not for immediate delivery but take effect on a future date when a carrier has agreed to the lay-days of the ship designated to meet the contract specifications and different bulk carrier types.

                                        CONTRACT OF CARRIAGE Reference:

UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL CARRIAGE OF GOODS WHOLLY OR PARTLY BY SEA

Chapter 1

General provisions

Article 1

Definitions

1.            "Contract of carriage" means a contract in which a carrier, against the payment of freight, undertakes to carry goods from one place to another. The contract shall provide for carriage by sea and may provide for carriage by other modes of transport in addition to the sea carriage.

2.   "Volume contract" means a contract of carriage that provides for the carriage of a specified quantity of goods in a series of shipments during an agreed period of time. The specification of the quantity may include a minimum, a maximum or a certain range.

3.   "Liner transportation" means a transportation service that is offered to the public through publication or similar means and includes transportation by ships operating on a regular schedule between specified ports in accordance with publicly available timetables of sailing dates.

4.  "Non-liner transportation" means any transportation that is not liner transportation.

5.  "Carrier" means a person that enters into a contract of carriage with a shipper.

         (a) "Performing party" means a person other than the carrier that performs or undertakes to perform any of the carrier's obligations under a contract of carriage with respect to the receipt, loading, handling, stowage, carriage, care, unloading or delivery of the goods, to the extent that such person acts, either directly or indirectly, at the carrier's request or under the carrier's supervision or control.

        (b)  "Performing party" does not include any person that is retained, directly or indirectly, by a shipper, by a documentary shipper, by the controlling party or by the consignee instead of by the carrier.

7. Maritime performing party" means a performing party to the extent that it performs or undertakes to perform any of the carrier's obligations during the period between the arrival of the goods at the port of loading of a ship and their departure from the port of discharge of a ship. An inland carrier is maritime performing party only if it performs or undertakes to perform its services exclusively within a port area.

8."Shipper" means a person that enters into a contract of carriage with a carrier.

9."Documentary shipper" means a person, other than the shipper, that accepts to be named as "shipper" in the transport document or electronic transport record.

 10."Holder" means:

    (a)    A person that is in possession of a negotiable transport document; and (i) if the document is an order document, is identified in it as the shipper or the consignee, or is the person to which the document is duly endorsed; or (ii) if the document is a blank endorsed order document or bearer document, is the bearer thereof; or

    (b)          The person to which a negotiable electronic transport record has been issued or transferred in accordance with the procedures referred to in article 9, paragraph 1.

11."Consignee" means a person entitled to delivery of the goods under a contract of carriage or a transport document or electronic transport record.

12."Right of control" of the goods means the right under the contract of carriage to give the carrier instructions in respect of the goods in accordance with chapter 10.

13."Controlling party" means the person that pursuant to article 51 is entitled to exercise the right of control.

14. "Transport document" means a document issued under a contract of carriage by the carrier that:

        (a)  Evidences the carrier's or a performing party's receipt of goods under a contract of carriage; 

        (b)  Evidences or contains a contract of carriage.

15. "Negotiable transport document" means a transport document that indicates, by wording such as "to order" or "negotiable" or other appropriate wording recognized as having the same effect by the law applicable to the document, that the goods have been consigned to the order of the shipper, to the order of the consignee, or to bearer, and is not explicitly stated as being "non-negotiable" or "not negotiable".

16. "Non-negotiable transport document" means a transport document that is not a negotiable transport document.

17. "Electronic communication" means information generated, sent, received or stored by electronic, optical, digital or similar means with the result that the information communicated is accessible so as to be usable for subsequent reference.

18. "Electronic transport record" means information in one or more messages issued by electronic communication under a contract of carriage by a carrier, including information logically associated with the electronic transport record by attachments or otherwise linked to the electronic transport record contemporaneously with or subsequent to its issue by the carrier, so as to become part of the electronic transport record, that:

      (a)  Evidences the carrier's or a performing party's receipt of goods under a contract of carriage; 

      (b)   Evidences or contains a contract of carriage

19. "Negotiable electronic transport record" means an electronic transport record:

      (a)  That indicates, by such as "to order", or "negotiable", or other appropriate wording recognized as having the same effect by the law applicable to the record, that the goods have been consigned to the order of the shipper or to the order of the consignee, and is not explicitly stated as being "non-negotiable" or "not negotiable"; and

      (b)  The use of which meets the requirements of article 9, paragraph 1.

20. "Non-negotiable electronic transport record" means an electronic transport record that is not a negotiable electronic transport record.

21. The "issuance" of a negotiable electronic transport record means the issuance of the record in accordance with procedures that ensure that the record is subject to exclusive control from its creation until it ceases to have any effect or validity.

22. The "transfer" of a negotiable electronic transport record means the transfer of exclusive control over the record.

23.  "Contract particulars" means any information relating to the contract of carriage or to the goods (including terms, notations, signatures and endorsements) that is in a transport document or an electronic transport record.

24.  "Goods" means the wares, merchandise, and articles of every kind whatsoever that a carrier undertakes to carry under a contract of carriage and includes the packing and any equipment and container not supplied by or on behalf of the carrier.

25.  "Ship" means any vessel used to carry goods by sea.

26.  "Container" means any type of container, transportable tank or flat, swap-body, or any similar unit load used to consolidate goods, and any equipment ancillary to such unit load.

27.  "Vehicle" means a road or railroad cargo vehicle.

28.  “Freight" means the remuneration payable to the carrier for the carriage of goods under a contract of carriage.

29.  “Domicile" means (a) a place where a company or other legal person or association of natural or legal persons has its (i) statutory seat or place of incorporation or central registered office, whichever is applicable, (ii) central administration or (iii) principal place of business, and (b) the habitual residence of a natural person.

30.  “Competent court" means a court in a Contracting State that, according to the rules on the internal allocation of jurisdiction among the courts of that State, may exercise jurisdiction over the dispute.

POI          POINTS OF TRADE AND COMMODITY SPECIFICATIOS. RATE SOURCES IMF PUBLICATION

6-Jan-16
Average Weekly Prices for Non-Fuel and Fuel Commodities
Commodities	Units	US $
Food
Cereals			Price Specifications
Wheat	$/MT	264.1	U.S. No. 1 hard red winter, ordinary protein, FOB Gulf of Mexico ports
Maize	$/MT	175.7	U.S. No. 2 yellow, prompt shipment, FOB Gulf of Mexico ports
Rice	$/MT	441.0	Thai, white milled, 5 percent broken, nominal price quotes, FOB Bangkok
Barley	$/MT	130.0	Canadian No. 1 Western Barley, spot price
Vegetable oils-protein meals			Price Specifications
Soybeans	$/MT	455.3	Soybean futures contract Chicago Board of Trade
Soybean meal	$/MT	456.8	Soybean futures contract Chicago Board of Trade
Soybean oil	$/MT	749.2	Soybean futures contract Chicago Board of Trade
Palm oil	$/MT	690.6	Crude Palm Oil Futures Bursa Malaysian
Fish meal	$/MT	2007.6	Peru Fish meal/pellets, 65% protein, CIF United Kingdom
Sunflower Oil	$/MT	997.9	Sunflower Oil, crude, US export price from Gulf of Mexico
Olive oil	$/MT	4136.6	United Kingdom ex-tanker prices, crude extra virgin olive oil,
Groundnuts	$/MT	1932.5	40/50 (40 to 50 count per ounce), in-shell, cif Argentina
Rapeseed oil	$/MT	848.4	Crude, fob Rotterdam
Meat			Price Specifications
Beef	cts/lb	260.0	Australian and New Zealand, frozen boneless, U.S. import price FOB port of entry
Lamb	cts/lb	132.1	New Zealand, PL, frozen, wholesale price at Smithfield Market, London
Swine Meat	cts/lb	113.4	51-52% (.8 - .99 inches of back fat at measuring point) lean Hogs, USDA
Poultry	cts/lb	112.8	Georgia docks, ready to eat whole body chicken, packed in ice, spot price (USDA).
Seafood			Price Specifications
Fish	$/kg	6.1	Fresh Norwegian Salmon, farm bred, export price
Shrimp	$/kg	N/A	Mexican, west coast, white, No. 1, shell-on, headless, 26 to 30 count
Sugar			Price Specifications
Free market	cts/lb	17.8	Coffee, Sugar and Cocoa Exchange, New York Board of Trade.
United States	cts/lb	26.5	Coffee, Sugar and Cocoa Exchange, New York Board of Trade.
EU	cts/lb	27.8	EU import price, unpacked sugar, CIF European ports.
Bananas			Price Specifications
	$/MT	994.5	Central American and Ecuador, U.S. importer's price FOB U.S. ports
Beverages			Price Specifications
Coffee milds	cts/lb	211.5	International Coffee Organization, Other Mild Arabicas New York cash price.
Robusta	cts/lb	103.8	International Coffee Organization, Other Mild Arabicas New York cash price.
Cocoa Beans	$/MT	3292.8	International Coffee Organization, Other Mild Arabicas New York cash price.
Tea	cts/kg	235.9	Mombasa auction price for best PF1, Kenyan Tea.
Agricultural raw materials			Price Specifications
Cotton	cts/lb	73.8	Middling 1-3/32 inch staple, Liverpool Index "A", average
			Cts/lb five of fourteen styles, CIF Liverpool
Wool			Price Specifications
Fine	cts/kg	1078.5	19 micron (AWEX, Australian Wool Exchange) Sydney, Australia
Coarse	cts/kg	1036.2	23 micron (AWEX, Australian Wool Exchange) Sydney, Australia
Rubber			Price Specifications
	cts/lb	83.4	Singapore Commodity Exchange, No. 3 Rubber Smoked Sheets.
Hides			Price Specifications
	cts/lb	108.0	U.S. Chicago packer's heavy native steers, over 53 lbs., wholesale price, dealers, FOB
Metals			Price Specifications
Copper	$/MT	6924.6	London Metal Exchange, grade A cathodes, spot price, CIF European ports
Aluminum	$/MT	2008.5	London Metal Exchange, standard grade, spot, minimum purity 99.5 %, CIF U.K. port
Iron Ore	$/MT	111.83	China import Iron Ore Fines 62% FE spot CFR Tianjin port;
Tin	$/MT	22390.8	Malaysian, straits, minimum 99.85 percent purity, Kuala Lumpur Tin Market
Nickel	$/MT	18576.9	London Metal Exchange, melting grade, spot price, CIF Northern European ports
Zinc	$/MT	2283.1	London Metal Exchange, high grade 98 percent pure, spot price, CIF U.K.
Lead	$/MT	2220.7	London Metal Exchange, 99.97 percent pure, spot price, CIF European ports.
Uranium	$/lb	30.5	Metal Bulletin Nuexco Exchange Uranium (U3O8 restricted) price
Energy			Price Specifications
Spot Crude	$/bbl	100.6	Average  equally weighted
U.K. Brent	$/bbl	102.4	Average of U.K. Brent (light) FOB U.K.
Dubai	$/bbl	102.2	Dubai (medium) API, spot price, FOB Dubai.
West Texas Intermediate	$/bbl	97.2	West Texas Intermediate  FOB Midland Texas
Natural Gas			Price Specifications
U.S. Domestic	$/MMBTU	3.9	Natural Gas Spot Price, Henry Hub, Louisiana

Ship’s Size and Cargo Types

International Trade Cost Vertex

                                               Source: Hofstra University

     Singapore as ground zero for distance effect on rates.

      Source: The author

FREIGHT RATE THEORY IN A EUCLIDEAN SPACE

This paper proposes Topological transformation to study the effects of distance on rates for any mode of transportation. If one considers a country’s area given in length and width by a characteristic rectangle transformed into a geometric Euclidian space can be generated for analysis of its inherent properties.

The characteristic perimeter of the rectangle can be transformed into an ellipsis with major axis √7 and minor axis √2 defining the longest and shortest distance limits in the two circles of radius 1 within the geometry of the ellipsis which substitutes the length and width of a country.  This symmetry is represented in the( x,y) plane as  X²/a²+Y²/b²=1 and interpreting the rates along the (a) axis being lower than along the     ( b) axis because fixed costs are spread over a longer segment of space.

                     

SOLOW GROWTH MODEL

The simple form of the model assumes no technological progress, depreciation of capital, and no labor force growth, which implies diminishing returns  that at some point the amount of new capital produced is only just enough to make up for the amount of existing capital lost due to depreciation. At this point, because of the assumptions of no technological progress or labor force growth, we can see the economy ceases to grow. However, injections of foreign investment in this model can upset the low saving rates of the model which simplifies to GDP, investment and consumption.

The model predicts that the income levels of poor countries will tend to catch up with or converge towards the income levels of rich countries if the poor countries have similar savings rates for both physical capital and human capital as a share of output. However, savings rates vary widely across countries. In particular, since considerable financing constraints exist for investment in schooling, savings rates for human capital are likely to vary as a function of cultural and ideological characteristics in each country. Here again exogenous factors such as foreign direct investment can offset low savings rates for a given country. Also, technology transfer in the form of capital investment which helped Japan and Germany pull out of the devastating effects of WWII.

In order to understand what the model depicts when comparing differences and similarities one could choose two countries with equal populations, same capital stock and same depreciation level as similarities. The differences in this particular model are saving rates and innovation as factors of production affecting GDP considering that consumption is the left over GDP after investment. Two typical countries in this model will have the following characteristically differences in GDP investment between innovation and savings. In essence and economy is more productive with a highly innovative labor force by a factor of two than an economy with high savings rates.

LEONTIEF INPUT-OUT MATRIX

The input–output matrix is as a quantitative economic technique represents the interdependencies between different sectors of a national economy.

The model represents inter-industry relationships within an economy, showing how output from one industrial sector may become an input to another industrial sector. In the inter-industry matrix, column entries typically represent inputs to an industrial sector, while row entries represent outputs from a given sector. This model indicates how dependent each sector is on every other sector of a given economy.

Francois Quesnay has been credited with developing an early version of this technique called Tableau économique. Other contributions made it the forerunner of the economics of general equilibrium theory which influenced generalization of Leontief’s seminal concept.

      Sample Economy of Steel Production by Sector.

CLOSING REMARKS

This paper suggests that another way to rate freight is by embedding costs-- fixed and variable-- into a matrix of (Commodity-Ton-Mile) where distance, direction of trade, geography, stowage, value and quantity etc., become columns and rows of an (m x n) matrix that must fit in a given dimensional space (transportation vehicle). In order to account for all these different dependencies of variables, these values need to be decoupled and set as vectors in (A-λI)X=0 to be transformed into eigenvalues and eigenvectors of matrix ij. These values can then be used for quoting a freight rate for a specific commodity in an origin-destination scenario on a per Ton-Mile basis.

                                                                               

REFERENCES

 Spear, S. E.; Young, W. (2014). "Optimum Savings and Optimal Growth: The Cass–Malinvaud–Koopmans Nexus". Macroeconomic  Dynamics. 18 (1): 215–243.

Collard, David A. (2011). "Ramsey, saving and the generations". Generations of Economists. London: Routledge. pp. 256–273. ISBN 978-0-415-56541-7.

Romer, David (2011). "The Solow Growth Model". Advanced Macroeconomics (Fourth ed.). New York: McGraw-Hill. pp. 6–48. ISBN 978-0-07-351137-5.

Breton, T. R. (2013). "The role of education in economic growth: Theory, history and current returns". Educational Research.

Dietzenbacher, Erik and Michael L. Lahr, eds. Wassilly Leontief and Input-Output Economics. Cambridge University Press, 2004.

ten Raa, Thijs. The Economics of Input-Output Analysis. Cambridge University Press, 2005.

US Department of Commerce, Bureau of Economic Analysis . Regional multipliers: A user handbook for regional input-output modeling system (RIMS II). Third edition. Washington, D.C.: U.S. Government Printing Office. 1997.

Disdier, A & K Head (2008), ‘The Puzzling Persistence of the Distance Effect on Bilateral Trade,’ The Review of Economics and Statistics, 90 (1), 37-48.22. Djankov, S, C Freund & C Pham (2006), ‘Trading on Time’, World Bank.

http://www.imf.org/external/index.htm

http://www.uncitral.org/uncitral/en/uncitral_texts/transport_goods/2008rotterdam_rules.html

http://www.ics-shipping.org/

http://www.grains.org/