Impact of Slow Steaming on U.S. Imports: Does Time Sensitivity Matter

Slow steaming (i.e., sailing at a reduced speed) has become a new standard in the ocean shipping industry. The main reason for its popularity among carriers is the cost savings from reduced fuel consumption. Reduced shipping speeds, however, also results in longer transit times, imposing important time costs on shippers (i.e., exporters and importers). Depending on the magnitude of time costs, shippers may consider alternatives to ocean shipping, such as substituting to air transport, or they may completely stop trading. The category of goods being traded is also expected to affect shippers' decisions, since time-sensitive goods are more sensitive to longer delivery. I examine the impact of slow steaming on the volume and composition of the U.S. imports, using U.S. imports and shipping speed data for voyages completed between selected U.S. and international port-pairs between 2006 and 2010. I estimate a set of modified gravity equations using fixed effects method. Results suggest that speed reductions during the study period had a direct impact on trade, with a 10 percent decrease in sailing speed reducing trade by at least 15 percent. The magnitude of this impact is even greater for time-sensitive products, with a 10 percent reduction in speed reducing trade of time-sensitive products by up to 57 percent.