Escalating travel and transport costs have been identified as one of the major contributors to possible increases in trade costs related to Covid-19 disruptions.
A new information note released by the World Trade Organization (WTO) points out that travel and transport costs account for as much as a third of trade costs depending on the sector. Pandemic-related travel restrictions are therefore likely to affect trade costs for as long as they remain in place, according to the report.
“For example, global air cargo capacity shrank by 24.6% in March as passenger flights account for around half of air cargo volumes. The resulting increase in airfreight prices is likely to subside only with a rebound in passenger transport.”
While sea and land transport have not faced comparable shocks, maritime transport has seen a decrease in numbers of sailings, while international land transport has been affected by border closures, sanitary measures and detours. In the local context, massive disruptions at SADC borders – an issue which has been well documented in this portal – support this assertion.
“Moreover, business travel, which is important for maintaining trading relationships and managing global value chains, in addition to being a significant economic activity in its own right, is being disrupted. The quality of information and communications technology (ICT) infrastructure and digital preparedness will be important in determining how well economies can cope.”
The report further points out that trade policy barriers and regulatory differences are estimated to account for at least 10% of trade costs in all sectors – and these include tariff and non-tariff measures, temporary trade barriers, regulatory differences and the costs of crossing borders.
“In addition, there’s the issue of uncertainty, which magnifies the impact of existing trade-related costs, weighing on trade finance flows and dampening the appetite of businesses to invest in researching new markets, acquiring language skills and prospective partners, and conforming with foreign standards.”
Looking ahead, the report notes that many governments have implemented measures to mitigate pandemic-related disruptions to economic activity, for instance by exempting certain transport crew from travel restrictions, or by enhancing the quality of and the access to ICT.
“While many of the changes in trade costs can be expected to revert once the pandemic is brought under control, some effects may persist. For example, aviation industry consolidation and shifts in passenger appetite for air travel could lead to higher air transport costs. In addition, government policy choices – which could either reduce or increase trade policy uncertainty – will be important in shaping uncertainty-related trade costs in the future.”