Shipping to America

The fragility of shipping routes entering the United States has long been overlooked, which may be to our advantage. Researchers examine the broader economic and trade policy consequences of potential hindrances to shipping en route to the U.S. Traditionally, economic models treat disruptions as equivalent to "iceberg-cost" shocks, failing to distinguish between the disruption itself and the subsequent response.

By applying satellite data to track vessels, researchers have developed a method to estimate both the theoretical and actual capacity of each route used by container ships headed to the U.S. from 2016 to 2025.

During previous shipping disruptions, utilization losses ranged between 20 to 40 percent, initiating well before port congestion became apparent. These findings have been integrated into a macroeconomic model, where firms increase production without taking into account the congestion they induce, and importers adjust their sourcing based on the profitability of different routes.

The adjustments made due to disruptions have immediate effects on overall welfare, and the significance of a route's weight in the Domar model does not accurately reflect its impact on welfare costs.

In 2021, the crisis on the West Coast and the attacks in the Red Sea in 2023-2024 resulted in a loss equivalent to 0.69 percent of the country's total output, while the latter experienced a smaller impact of 0.35 percent. Naval protection of Red Sea shipping routes was found to provide benefits ranging between 0.04 to 0.08 percent of the output, but at a fiscal cost of 0.02 percent.

Interestingly, imposing tariffs on troubled routes can alleviate congestion, potentially offsetting or even reversing the usual welfare cost associated with these trade restrictions.