Trade Costs, Time, and Supply Chain Reliability

Abstract

This paper uses measures of international transport time, in median and standard deviation, based on shipment-level data from the Universal Postal Union, to analyze the effect of time on trade costs. The paper finds robust evidence that median shipping times increase trade costs by a substantial amount. The evidence for uncertainty, as measured by the standard deviation of shipment time, is contrary to expectations, likely due to problems recording data on the ground. It also analyzes the determinants of shipping times and finds that geographical distance is the most reliable indicator of median time and uncertainty, with logistics performance, as measured by the World Bank’s Logistics Performance Index, also playing a role in determining shipment times. South Asia Subregional Economic Cooperation countries could benefit from investing additional resources in improving connectivity and thereby reducing transport times and increasing reliability to major markets.