A comparative study on the use of country’s import CIF/FOB ratios to measure international transport costs.
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Date
2015
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Abstract
This study examines the use of a country’s import cif/fob ratios (import ad valorem shipping costs)
as a measure for international transport costs. The study seeks to source, compile, calculate and
compare the country cif/fob ratios for South Africa, the United States of America, Germany,
Venezuela, and Australia from the year 1980 to 2012. The study seeks to establish whether there
is a relationship between a country’s import cif/fob ratio and a country’s composition of imports,
as measured by the standard international trade classification (SITC) data. Empirical evidence is
provided that the cif/fob ratios, are frequently misused, incorrectly recorded and miscalculated.
They are therefore not reliable and they misrepresent the actual direct shipping and international
transport costs of countries. The import cif/fob ratios of each country studied were correlated with
each country’s composition of imports. The results for the United States of America, Germany and
Australia show that when a country’s trade data are correct and reliable, a country’s imports
composition of trade has a substantial and statistically significant effect on the level and variation
of that country’s imports cif/fob ratios. Hence, the ratio cannot be relied on or be used as a measure
of a country’s direct shipping costs (ad valorem shipping costs) without the context of the
country’s imports composition. Furthermore, the results for South Africa and Venezuela show that
import cif/fob ratios are inaccurate and unreliable indicators of shipping costs and should not be
used as a direct measure of international transport costs.
Description
Masters Degree, University of KwaZulu-Natal, Durban.