Endogenous transport prices and trade imbalances

According to economic theory, imbalances in trade flows affect transport prices, because (some) carriers have to return without cargo from the low-demand region to the high-demand region. Therefore, transport prices in the high-demand direction have to exceed those in the low-demand direction. This implies that transport costs, and therefore trade costs, are fundamentally endogenous with respect to trade imbalances. We study the effect of an imbalance in trade flows on transport prices using micro-data on trips made by carriers in the inland waterway network in North West Europe. We find that imbalances in trade flows have substantial effects on transport prices. We estimate that a one standard deviation increase in the region's trade imbalance (the ratio of export and import cargo flows) increases the transport price per tonne of trips departing from this region by about 7%.