Container cabotage policy and its impact on western Canadian pulse exports : a gravity model approach

Abstract

Containerized shipping of specialty agricultural products from western Canada is hampered by the high costs of obtaining empty equipment. An avoidable barrier to cost-effective container shipping is the out-dated Customs regulations on container cabotage. These regulations, originally intended to protect domestic industry, provide for strict use requirements for internationally owned containers in Canada and require many shippers and carriers to reposition empty equipment. This negatively impacts the costs of container transportation for specialty agricultural products. A series of in-depth interviews were conducted with various industry stakeholders. This was followed up by a self-administered, faxed-out questionnaire to gather more detailed information. Following this, a gravity model for the eastbound lentils export market was developed with the aim of quantifying the freight rate elasticity. The information obtained from the survey process was used to quantify the effects of container cabotage policy on lentils export volumes. Canadian lentils exports are highly elastic to freight rates and suggest that reducing freight rates for this market could have great appeal to shippers and carriers. A 5% reduction in freight rates, which could arise from deregulating the cabotage market, could induce lentil exports to increase by about 10%. This translates into an expected increase of about $10 million in improved export sales.