What Drives the High Price of Road Freight Transport in Central America?
In Central America, like many other developing regions, high transport costs are cited as an important impediment to trade and economic growth. Prices for road freight transport, a key mode of transport comprising a significant share of total trans...
| Main Authors: | , , |
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| Format: | Other Infrastructure Study |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/12/19203345/drives-high-price-road-freight-transport-central-america http://hdl.handle.net/10986/17845 |
| Summary: | In Central America, like many other
developing regions, high transport costs are cited as an
important impediment to trade and economic growth. Prices
for road freight transport, a key mode of transport
comprising a significant share of total transport costs for
both intra, and extra, regional trade, are particularly
high. Averaging 17 US cents per ton-kilometer on main
trading routes, these rates stand out even relative to other
inefficient developing country markets (e.g., central and
west Africa). However, the policy and other factors
associated with increased prices have not been well
understood. Using data from a survey of trucking companies
operating on the region's main trade corridors, this
paper analyzes the primary drivers affecting firms'
cost of providing service, as well as the effect of market
structure and competition on markups and prices. We find
that whereas improved cost efficiencies could reduce prices
by 3 cents per ton?kilometer, increased competition on
national routes, those entirely within a nation's
borders, will reduce prices by significantly more. Although
there are many trucking companies, including small and
somewhat informal operators, the degree of competition
varies by route due to domestic restraints on competition
and the prohibition on international competition on national
routes. Our empirical result shows that the effect of
barriers to entry and imperfect competition on markups
accounts for at least 35 percent of mean prices on national
routes. Moreover, a lack of competition is likely to explain
the persistence of an inefficient market structure and scale
of operation, as well as a lack of innovation to reduce
costs and enhance the quality of service. |
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