A comparative study on the use of country’s import CIF/FOB ratios to measure international transport costs.

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.