… shipping charges account for 12.4% of cost of exports
Freight costs as a percentage of the total cost of goods shipped from Guyana to the United States are among the highest in Latin America and the Caribbean, according to a recent study conducted by the Inter American Development Bank. (IDB)
The study which examines freight costs to the United States in 26 Caribbean and Latin American countries indicates that freight charges account for 12.4 per cent of the overall cost of all goods shipped from Guyana to the United States. Of the 26 countries listed in the IDB study, Paraguay is the costliest country from which to ship goods to the United States with freight charges from that country accounting for 15.9 per cent of total cost of exports to the United States.
Among the Caricom countries that are part of the study freight costs account for 4.1 per cent of total cost of exports to the United States from Barbados while freight charges account for 5.4 per cent of the total cost of exports from Trinidad and Tobago. Freight costs as a percentage of total costs of exports to the United States from Belize and Jamaica are put at 5.9 per cent.
According to the IDB study Latin America and the Caribbean as a whole spends almost twice as much as the United States in freight charges for its exports. Most Latin American and Caribbean countries have higher freight rates for their exports to the United States than countries in the Far East and Europe despite their relative closeness to the US. Far more distant countries and regions from the United States than Guyana, including China and Oceana have lower freight rates. Overall, freight costs account for 6.6 per cent of the region’s import value, nearly twice as much as the 3-4 per cent in the United States.
The IDB report says that ports in Latin America and the Caribbean have the lowest productivity levels when compared with ports in the North America, Western Europe, the Middle East and Asia adding that port efficiency is related to, among other things, pilotage, towing a tug assistance and cargo handling.
Significantly, the study cites the lack of efficiency in the infrastructure as one of the primary reasons for high freight costs, asserting that this accounts for about 40 per cent of the difference in shipping costs between Latin America and the Caribbean and the United States and Europe.
The report says that if freight charges from countries in the region are to be cut governments must undertake investments in port improvement such as the dredging of channels to allow for larger vessels with lower operating costs to enter their ports.
Several weeks ago Chairman and Chief Executive Officer of John Fernandes Ltd Chris Fernandes, in an interview with Stabroek Business, alluded to what he described as “historic challenges” associated with the efficiency of the harbor and its impact on the economy. Fernandes told Stabroek Business that ships coming into Port Georgetown are unable to move the volumes of cargo they are capable of in view of the silting up of the channel. Fernandes had said that as the problem in the channel grows the cost of moving cargo in an out of Guyana increases. In his interview with this newspaper Fernandes noted that Port Georgetown was pivotal to the country’s economy since it attracts revenue accruable from value added taxes and duties totaling more than $1 billion per month.
He said that improving the draught, safety and efficiency of the harbour will require “millions of US dollars.” He said that the port was in need of a modern dredge and a new pilot launch to replace the ageing equipment currently in use.
This newspaper was also informed by Fernandes that discussions are underway between the Ministry of Works and the Guyana Shipping Association on the idea of public/private sector management of Port Georgetown aimed at realizing the ‘sustained efficiency” of the port.
The IDB study notes that while, traditionally, tariffs have accounted for a much larger share of trade costs, transport costs are now more than four times larger than tariff costs in Latin America and the Caribbean. It asserts that a reduction in these trade costs must be a priority for the region where countries are seeking to consolidate their economic position in a world that has begun to emerge from crisis.
The study partially blames high freight costs for low productivity levels in Latin America and the Caribbean adding that reduced freight costs will raise aggregate productivity by making inefficient firms more likely to “exit” and more efficient firms more likely to export.
In calling for increased efficiency at ports and airports and improved regulation in Latin America and the Caribbean to become “top priority” the report says issues such as the clarity of port procedures, the accuracy of their information systems and the existence of legal systems are critical to port efficiency.