These observations suggest that distance is not a factor in
explaining freight rates. When base rates are correlated with distance
an inverse and statistically insignificant coefficient of
0.321is obtained. This goes against the findings of much recent
research, where several authors using quantitative analysis (Wilmsmieir
and Hoffman, 2008; Micco and Perez, 2002; Limao and
Venables, 2001), conclude that distance is a determinant of freight
rates since it is a surrogate for time at sea and thus influences variable
costs such as labor and fuel. Our result supports the finding of
a recent report (OECD, 2008) that criticized physical distance as a
good determinant of trade and that relative distance might be
more appropriate, especially time.
These observations suggest that distance is not a factor in
explaining freight rates. When base rates are correlated with distance
an inverse and statistically insignificant coefficient of
0.321is obtained. This goes against the findings of much recent
research, where several authors using quantitative analysis (Wilmsmieir
and Hoffman, 2008; Micco and Perez, 2002; Limao and
Venables, 2001), conclude that distance is a determinant of freight
rates since it is a surrogate for time at sea and thus influences variable
costs such as labor and fuel. Our result supports the finding of
a recent report (OECD, 2008) that criticized physical distance as a
good determinant of trade and that relative distance might be
more appropriate, especially time.
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