1. Impacts of Trade and Transport Policy on International Cargo Shipping and Economic Activities (final draft report) Ryuichi SHIBASAKI, Dr. Eng. Senior Researcher National Institute for Land and Infrastructure Management (NILIM), MLIT JAPAN 1

2. Steps Forward  30th TPT-WG (April 2008, Philippines): approval of the proposal  31st TPT-WG (August 2008, Peru): intermediate reports and discussion [1]  32nd TPT-WG (July 2009, Singapore): intermediate reports and discussion [2]  33rd TPT-WG (October 2010, Japan): final presentation and discussion for final report submission 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 2 Japan 2010

3. 1) Introduction (Background, Objective, Methodology) 2) Examples of policies to be simulated by this system A. Trade Policy B. Transport Infrastructure Investment and Cost Reduction Policy C. Risk Management on International Shipping 3) Discussion Contents of Today’s Presentation Japan 2010 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 3

4. Japan 2010 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 4 1) Introduction

5. Introduction - For further discussion in order to realize trade liberalization and efficient transport, if we can know the quantitative effects of these policies, the discussion would be very effective and fruitful. Ex) - What economic growths are expected by trade liberalization and facilitation? - To what degree transport cost is reduced by constructing transport infrastructure and removing cross-border barriers? - Trade liberalization and efficient transport are the most important key issues for regional development of APEC economies. Japan 2010 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 5

6. Introduction 2. Transportation plays a key role in the APEC agenda for trade facilitation and economic integration in the Asia-Pacific region. The movement of people and goods underpins economic and social development in the region. Transport sector activity itself accounts for a significant portion of regional economies. It is therefore necessary that the transport systems are efficient, convenient and secure. Excerpt from 5th APEC Transportation Ministerial Meeting, Joint Ministerial Statement: Japan 2010 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 6

7. -To develop “Trade and Logistics Forecasting System for the APEC region”, a successive prediction system of trade amount and international cargo flow, in order to support a quantitative discussion for realization of trade liberalization and efficient transport among APEC economies as well as for each economy - This system can be shared for each member economy for some analyses on the APEC region and its own economy, by collaborating with a development group of the system and preparing some additional data if needed Objectives of the Project 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 7

8. Trade and Logistics Forecasting System for the APEC Region Trade Amount 3. International Cargo Flow Model (chapter 4) 3. International Cargo Flow Model (chapter 4) 1. Trade Forecasting Model (chapter 2) 1. Trade Forecasting Model (chapter 2) Economic Growth A. Trade Policy Cargo Shipping Demand (OD cargo flow) Maritime / Land Transport Cargo Flow by Route Maritime / Land Transport Cargo Flow by Route B. Transport Infrastructure Investment C. Risk Scenario on International Shipping B. Transport Infrastructure Investment C. Risk Scenario on International Shipping - Values per unit weight - Modal Share - Containerized Ratio, etc. INPUTS OUTPUTS Reduced Shipping Cost OUTPUTS INPUTS 2. Cargo Shipping Demand Transforming (chapter 3) 8

9. 2) Examples of policies to be simulated by this system A.Trade Policy B.Transport Infrastructure Investment and Cost Reduction Policy C. Risk Management on International Shipping 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010 9

10. A. Trade Policy What impacts on international cargo volumes and economic activities of the APEC region are expected by trade liberalization and facilitation towards? including bilateral and multilateral negotiation for concluding Free Trade and Economic Partnership Agreement (FTA, EPA) 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010 10

11. - Most popular model package among the world for trade forecast - CGE (Computable General Equilibrium) framework based on Microeconomic theory Global Trade Analysis Project (GTAP) Model - Many applications in practical field e.g. GATT [1994] … Economic Analysis at Uruguay Round APEC [1997] … Economic Impact of Trade Liberalization based on Manila Action Plan 11 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010 Model

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13. 13 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010 ScenarioDescription High casethe growth rate of economic indices (i.e. population, capital stock, natural resource output, technological advancement) and the reduction rate of tariffs (both in average and bilateral) are large including elimination of tariff within the APEC regions Middle case the growth rate of economic indices and the reduction rate of tariffs are moderate Low casethe growth rate of economic indices and the reduction rate of tariffs are small Baselinethe growth rate of economic indices based on the past trend and no additional tariff reduction are assumed Four Future Economic Scenarios prepared

14. Increase rate of trade amount (year 2008 = 100) 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Example of Forecasting Results (1)

15. Increase rate of international cargo shipping demand (year 2008 = 100) 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Example of Forecasting Results (2)

16. B. Transport Infrastructure Investment and Cost Reduction Policy What impacts on international cargo flow patterns, transport costs and economic activities of the APEC region are expected when transport policies are implemented? such as - constructing new terminal and berth in port - smoothing transaction and shortening lead-time at terminal - discounting charges and fares, and - removing cross-border barrier 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010 16

17. 1 st level 2 nd level 3 rd level Shipper Submodel Upper model: Choosing import/export ports and land transport routes Stochastic network assignment Lower Model: Choosing carriers Logit Model Carrier Submodel Income maximization model: deciding freights of each route under transport cost given as well as considering shipper’s behavior of carrier choice Cost minimization model: minimizing total transport cost of their own group under their demand by routes given System optimum network equilibrium assignment model Maximizing profit by alliance (carrier group) Minimizing “perceived” cost by individual shipper Composition cost of lower model (equilibrium under a condition that other groups’ behavior are given) including Price competition model under differentiated goods Demand by routes freights by routes and carriers (stochastic assignment model) Model for International Cargo Simulation (MICS)

18. Container Ports dealt in the Model (total: 143 ports) 18 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010

19. Northeast Asia, Central Asia and Russia zone representative (origin/destination) Land Transport Network for International Cargo Shipping 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010

20. 20 Southeast Asia zone representative (origin/destination)

21. 21 Oceania zone representative (origin/destination)

22. 22 North America zone representative (origin/destination)

23. 23 South America zone representative (origin/destination)

24. 24 Estimated Results of Container Throughput (loaded/unloaded/transshipped container) in 2015

25. 25 Calculated reduced cost of international cargo shipping by container berth investment

26. C. Risk Management on International Shipping What impacts on international shipping market and economic activities of the APEC region are expected when some sea routes such as Straits of Malacca are blocked due to some security reasons? 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010 26

27. Risk Simulation Blockade of Malacca Strait and detouring to Lombok Strait Malacca Strait Lombok Strait Sunda Strait (shallow) Singapore TJ Pelepas TJ Perark (Surabaya) TJ Priok (Jakarta) Klang 27 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010

28. 28 Estimated Change of Container Throughput due to Blockade of Malacca Strait in 2008

29. 29 Calculated increased cost of international cargo shipping due to the blockade of the Malacca Strait

30. Implication from Trade Policy Simulation (example)  Trade liberalization and facilitation can accelerate economic and trade growth as well as international shipping demand increase  In particular, increasing rate of international maritime container shipping demand will surpass trade growth rate 30 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010

31. 32nd APEC Transportation Working Group Meeting, Singapore, 27-30 July 2009 SINGAPORE 2009 Expected Implication of Transport Infrastructure Investment Simulation (example)  Logistics infrastructure investment (e.g. maritime container berth construction and deepening) will reduce international shipping cost  The benefits will spread not only the economies that policies implemented, but also all of other economies as well as the entire world 31

32. Expected Implication from Risk Simulation  Detouring due to blockade the strait will increase international shipping cost  Negative impact will broadly spread to the region (example) 32 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010

33. Conclusion 33 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010  “Trade and Logistics Forecasting System for the APEC region” is developed  This system will contribute to measuring impacts of trade and transport policy on international cargo shipping and economic activities of each economy as well as a mutual development of the APEC region  By collaborating with a development group of the system and preparing some additional data if needed, each member economy can use this system to meet its own economy’s interest as well as consider the impact of the entire APEC region

34. Thank you for your attention! 34 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010 for contact: Ryuichi SHIBASAKI, Ph.D National Research Institute for Land and Infrastructure Management Ministry of Land, Infrastructure, Transport and Tourism, Japan shibasaki-r92y2@ysk.nilim.go.jp tel:+81-46-844-5028, fax:+81-46-844-6029 3-1-1 Nagase, Yokosuka, Kanagawa, 239-0826, Japan

35. 35 data conversion process from bilateral trade amount into international cargo shipping demand

36. International Logistics Flow Model - Developed by NILIM, Japan - Predicting international logistics flow (mainly maritime container cargo) by inputting cargo transport demand (from a region to other region) - Calculated based on a Nash Equilibrium between oceangoing carrier and shipper, as well as between major carriers - Mainly focusing maritime shipping, but also including international and hinterland land transport (only East Asia presently) Model for International Cargo Simulation (MICS) 36 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010 Japan 2010

37. Export/Import Container Transshipped Container Prediction of Port Cargo Throughput (in East Asian ports, in 2003, tentative) (Malaysia) (China) (Chinese Taipei) (China) 37 33rd APEC Transportation Working Group Meeting, Japan, 11-14 October 2010

38. 32nd APEC Transportation Working Group Meeting, Singapore, 27-30 July 2009 TEU converted Predicted Land Cargo Flow in East Asia (in 2003, tentative) 38

39. 39 Methodology of Risk Scenario Simulation Increasing Length of Links that were passed through Malacca Strait (assuming pass through Lombok Strait) South Asia Middle East Europe East Asia Southeast Asia West Coast of North America Malacca Strait  Blockade of Malacca Strait