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Ocean Freight Rates and Economic Development 1730-1913

Published online by Cambridge University Press:  03 February 2011

Douglass North
Douglass North
Affiliation:
University of Washington
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Extract

Revolutionary developments in transport have been an essential feature of the rapiddevelopments in transportgrowth of the past two centuries. Reduction in the cost of carriage has enabled specialization and division of labor on a national and international basis to replace the relatively self-sufficient economies that predominated in the western world two centuries ago. The striking role of the railroad in the nineteenth century is well known. However, it was water transport in which the bulk shipment of commodities began, and it was the development of ocean shipping that was an integral aspect of die growing economic interdependence of the western world, the opening up of the undeveloped continents, and the promotion of the settlement of the “empty lands.” The declining cost of ocean transportation was a process of widening the resource base of the western world. The agriculture of new countries was stimulated (and that of old countries at least temporarily depressed), the specter of famine as a result of crop failure reduced, and the raw materials were provided for industrialization. In short, the radical decline in ocean freight rates was an important part of the redirection of the resources of the western world in the course of the vast development of die past two centuries.

Type
Articles
Information
The Journal of Economic History , Volume 18 , Issue 4 , December 1958 , pp. 537 - 555
Copyright
Copyright © The Economic History Association 1958

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References

1 I shall gloss over here many of the technical problems involved in this study, such as the determination of an “annual rate,” problems of weighting in the development of indexes of rates on trade routes, differences between liner and tramp rates, time charter and voyage charter, etc.

2 A freight factor measuring the ocean transportation cost in the C.I.F. price of a commodity is calculated as follows:

3 The immigrant trade, in consequence, was an important influence in the decline of timber and cotton rates during this period.

4 The most striking exception in the early period of this study was the East India Company. Its exclusive monopoly grant from the Crown was only gradually loosened at the end of the eighteenth century and again in order to obtain renewal of its charter in 1813.

The establishment of conference agreements on liners in the latter part of the nineteenth century was sporadically successful at preventing price competition. The Calcutta Conference of 1875 wa s perhaps the first successful rate agreement.

5 See Glover, John, “Tonnage Statistics of the Decade 1860-70,” Journal of the Statistical Society of London, XXXV (1872), 220–21Google Scholar.

6 Koopmans, T., Tanker freight Rates and Tankship Building (Haarlem: De Erven F. Bohn N. V., 1939) ch. vGoogle Scholar.

7 Ralf Davis points up similar conditions in the seventeenth century. See “Merchant Shipping in the Economy of the Late Seventeenth Century,” Economic History Review, IX (08 1956), 59–73Google Scholar.

8 Thus Baltic timber ships were unsuitable for the Canadian timber trade, East Indiamen for most other trades, etc.

9 This was true, for example, of the cotton trade in 1838 and 1840.

10 The relationship between freight rates and shipbuilding has been explored in several studies. See Koopmans, Tanker Freight Rates, Part III, for a discussion of the subject.

11 Of course, with the use of iron ships, this problem was overcome. The problem of diminishing returns in the supply of ship timber before the Civil War is discussed in Hutchins, John G. B., The American Maritime Industries and Public Policy 1784-1914 (Cambridge: Harvard University Press, 1941), ch. xGoogle Scholar.

12 See North, Douglass, “The United States Balance of Payments, 1790-1860,” 24th Conference on Income and Wealth (forthcoming), for estimates of U.S. shipping earnings during this periodGoogle Scholar.

13 They also fell very substantially in the India-China trade but part of this fall may be ascribed to the end of the East India Company monopoly.

14 See Graham, G. S., “The Ascendancy of the Sailing Ships 1850-85,” Economic History Review, IX (08 1956), 74–88CrossRefGoogle Scholar.

18 They also derived some advantage from the decline in outward rates (particularly in the first period of falling rates), which tended to make it more difficult for new countries to develop some kinds of manufacturing. This point is amplified below.

16 An exception is Charles Kindleberger, P., The Terms of Trade (New York: John Wiley & Sons, 1956), which attempts to take freight charges into account for the years after 1870Google Scholar.

17 Also since freight rates did not always move with prices, movements of terms of trade frequently have stemmed from changes in freight rates.

18 Imlah, A. H., “The Terms of Trade of the United Kingdom, The Journal Of Economic History, X (11 1950), 170–94CrossRefGoogle Scholar.

19 The empirical findings of this research study, therefore, support the conclusion of Ellsworth (and others) that an improvement in the terms of trade of the United Kingdom (as a result of the decline in C.I.F. import values) did not imply a worsening of the position of primary producing countries. See Ellsworth, P. T., “The Terms of Trade Between Primary Producing and Industrial Countries,” Inter-American Economic Affairs (Summer 1956), pp. 47–65Google Scholar.

20 How important was the freight rate decline in the over-all decline of C.I.F. prices from 1815 to 1848 and 1873 to 1896? The data are not as yet organized to give an over-all answer. Clearly it was important, as the few illustrations cited above indicate, but a complete statistical judgment must await the completion of the processing of the data.

21 However, even the shift in sources of supply of United Kingdom timber from Norway to the Baltic to British North America and back to the Baltic again reflected charges in duties as well as freight rates.

22 The North Pacific trade began much earlier and rates in the 1870's were frequently in excess of 15 shillings per quarter on the long voyage around Cape Horn to Liverpool.

23 It is in this context that the development of new wheat regions, such as Argentina and the Pacific Northwest, makes good “economic sense” even in the context of declining C.I.F. prices during the late nineteenth century. W. Malenbaum's argument (The World Wheat Economy, 1885–1939, Cambridge: Harvard University Press, 1953Google Scholar) that it was in effect an economically irrational movement does not take sufficient account of the decline in transport costs.

24 Steerage passage fares (excluding food) from Liverpool to New York varied from £4½ to £7 in the early 1820's. They were £2½ in 1851 and a little higher during the rest of the 1850's (except 1854, when they were as high as £4½).

25 See the evidence on immigrants' remittances in my study of “The United States Balance of Payments, 1790-1860” (24th Conference on Income and Wealth (forthcoming), Appendix 2.