In addition to international trade in merchandise, the United States exports (sells) and imports (buys) a variety of services, including freight transportation and port services42 (box 4). In 2001, total U.S. services trade accounted for about 21 percent of U.S. overall international trade, a slight decline from 23 percent in 1990. Between 1990 and 2001, merchandise trades share averaged about 78 percent (figure 19). While overall services trade accounted for about one-fifth of U.S. international trade, services maintained the largest share of U.S. gross domestic product for many years.
Defining services trade is a complex issue, tied to how governments calculate their balance of payments. International services trade, as reported by the U. S. Department of Commerce, Bureau of Economic Analysis' current account, includes private and public transactions. Public or government transactions mainly cover operations of the U.S. military and embassies abroad (e.g., transporting supplies from the United States to a military base in a foreign country). Because these public sector transactions are not considered to reflect U.S. service industries' competitiveness and may introduce fluctuations from events such as peacekeeping missions, this report discusses only private sector services trade.
Services are traded internationally through two primary channels. The first channel involves sales of services by residents of one country to residents of another country. These sales-cross-border trade-include both trade within multinational companies (intrafirm trade) and trade between unaffiliated parties. Services trade is recorded for both countries: as exports for the seller's country and as imports for the buyer's country. The second channel of delivery is sales through foreign affiliates of multinational companies. From the U.S. perspective, these are sales to foreigners by foreign affiliates of U.S. companies. For example, if a Japanese citizen buys a car in Japan that is produced by a General Motors affiliate in Thailand, this sale will not be considered a U.S. international transaction, because it is a transaction between foreigners. Cross-border and affiliates trade have different effects on the U.S. economy. For example, U.S. cross-border exports have a greater beneficial effect than equivalent sales through foreign affiliates, because the income from this trade accrues to U.S.-supplied labor and capital. This report only discusses cross-border services trade.
Cross-border services trade is classified into five broad categories: travel, passenger fares, other transportation (i.e., freight transportation and port services), royalties and license fees, and other private services. (See box source for coverage and definitions of the categories.) This report focuses on freight transportation and port services because they directly relate to the movement of merchandise. The freight and port services category covers freight charges and receipts for transportation of goods by ocean, air, land (truck, rail, and pipeline), and inland water carriers to and from the United States and between two foreign points. It also includes the value of goods (e.g., fuel) and services purchased by foreign carriers in U.S. ports and vice versa. Travel and passenger fares are discussed in a BTS companion report, U.S. International Travel and Transportation Trends.
U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, November 2001.
Trade in freight and port services generates substantial revenues for U.S. businesses in terms of receipts to U.S. carriers and ports. These services also result in payments by U.S. companies to foreign freight carriers and ports. Exports of freight transportation services occur when a U.S. carrier receives payments from a foreign company or individual for transporting merchandise. Imports of freight transportation services occur when a U.S. company or individual pays a foreign carrier for transporting merchandise. Similarly, U.S. exports of port services occur when foreign carriers purchase services and goods (e.g., fuel) at U.S. airports and seaports. U.S. imports of port services occur when a U.S. carrier purchases services and goods at ports in foreign countries43 (USDOC BEA 2001).
The freight transportation and port services sectors comprise many industries, including carriers, ports and terminals, and logistics providers, among other businesses (figure 20). These industries interact to manage the product supply chain and transport internationally traded goods. Because of the widespread use of just-in-time (JIT) inventory management, manufacturers, distributors, retailers, and other firms involved in international trade often rely on a combination of carriers and logistics providers (e.g., freight forwarders, arrangers, and consolidators) to transport goods globally from multiple suppliers.44 For example, Hewlett-Packard uses a complex logistics and transportation management system to supply inkjet printers to its North American market from suppliers in Vancouver, Washington, and Singapore (Armbruster 2001). Many American companies, such as Caterpillar Inc., Ford Motor Company, Frito-Lay, and Campbell Soup, use both in-house and third-party transportation service providers to manage the inflow of raw materials and outflow of finished products by multiple transportation modes on a time-definite basis (PR Newswire 2001 and Logistics Management Distribution Report 2000). Since JIT puts a premium on transportation system reliability and speed, the performance of freight carriers and ports directly influences the competitiveness of U.S. businesses engaged in international trade.
In 2001, U.S. trade in freight transportation and port services was $67 billion, down 6 percent from $72 billion in 2000 (figure 21). This annual decline was only the second since 1986, the first year for which the Bureau of Economic Analysis (BEA) reported consistent data on services trade.45 Of the $67 billion, 56 percent was for freight services and the remainder was for port services.46 The 2001 declines were in both exports (receipts) and imports (payments), mostly due to the lower volume of air traffic immediately after September 11.
Despite the decline in 2001, U.S. international freight and port services trade grew between 1986 and 2001 as the volume of merchandise transported internationally increased. During this period, U.S. total trade (receipts plus payments) for these services doubled from $33 billion to $67 billion, growing at an average annual rate of 4.8 percent. U.S. exports (receipts) grew at a 4.1 percent annual rate, whereas imports (payments) grew 5.3 percent per year, mirroring trends in goods trade. Figure 22 shows that while U.S. international freight and port services trade increased, its relative share of the U.S. total private sector services trade declined from 23 percent in 1986 to about 15 percent in 2001. This occurred because other services share, particularly telecommunications and Internet-related services, increased much faster in the 1990s.
In 2001, the U.S. experienced a surplus in overall services trade, contrasting with the deficit for merchandise trade. At the same time, however, a nearly $14 billion deficit was seen in freight services while port services showed a $3 billion surplus, leading to an overall deficit of $11 billion for freight and port services combined (figure 23 and appendix table C-20, p. 138). The 2001 freight services deficit continued a trend seen since 1986, the first year for which data are available. As the amount of U.S. merchandise imports increased, so too did the payments to foreign carriers transporting many of these goods. In contrast, during the same 15-year period, the United States maintained a surplus in port services as foreign carriers that transported increasing amounts of U.S. import cargo also purchased increasing amounts of services from U.S. ports.
The United States engages in services trade with numerous countries worldwide. Many of these countries are also the top merchandise trading partners of the United States. Overall in 2001, Japan was the top U.S. services trade partner in freight transportation and port services combined, with over $9 billion, about 40 percent of this for receipts to U.S. carriers and ports and 60 percent in payments to Japanese carriers and ports47 (see appendix table C-21, p. 139). Japan was followed by Canada and the United Kingdom.
In 2001, U.S. exports (receipts) of freight and port services were $28 billion, with Japan accounting for almost 12 percent of this activity. For freight services exports alone, Canada was the leading U.S. trade partner, primarily because of the $1.6 billion paid to U.S. carriers for transporting goods to Canada by surface modes. Japan was second, with two times more paid to U.S. air carriers than U.S. ocean carriers. In contrast, for port services exports, Japan was the leading U.S. trade partner with $2 billion in activity; 62 percent of this was for the use of U.S. maritime port services.
Japan was also the leading U.S. trade partner for imports (payments) of freight and port services, accounting for 14 percent of the $39 billion total in 2001. For freight services imports alone, Japan also was the largest U.S. partner followed by Canada with $2.5 billion, where over 90 percent of these payments were to Canadian trucking and rail companies. Japan also led U.S. port service imports (or payments to Japanese air and maritime ports) with $2.1 billion, followed by the United Kingdom with $1.6 billion (appendix table C-21, p. 139).
In 2001, declines in overall freight and port services trade were experienced by all the modes, but air cargo services were affected the most.
Prior to the 2001 overall declines, there had been some notable modal changes in freight and port services trade since 1986.48 U.S. air carriers now export the majority of U.S. freight services (i.e., receive the most receipts), having overtaken ocean carriers in 199749 (figure 24). Increases in air cargo revenues helped U.S. airlines offset relatively higher fuel prices during most of this period. Since 1986, exports by U.S. surface freight carriers for transporting goods to Canada and Mexico by truck and rail also rose, with most of the revenues representing services to Canada (USDOC BEA 2001). U.S. imports (payments for freight services to foreign carriers) rose between 1986 and 2000, reflecting the strong growth in the volume of merchandise imports and higher freight rates during this period, particularly for liner vessel freight imports from Asia and tanker freight rates for most regions.
For port services, the gap between U.S. exports of maritime port and airport services narrowed between 1986 and 2000, with U.S. airports providing more exports (receipts) in 1998 before maritime port services once again increased. Airport and seaport receipts rose as increases in both the volume of goods and passengers resulted in greater port expenditures by foreign air carriers and maritime vessels. U.S. payments for port services also went up for airport services between 1986 and 2000, as a result of growth in air cargo and passenger activity (USDOC BEA 2001). Payments for airport services far exceed those for either surface or ocean modes.
42 In this report, transportation services include freight services provided by transportation carriers as well as by port facilities (e.g., airports, seaports, and terminals). The other transportation services-travel and passenger fares-are not discussed here. BTS discusses them in a companion report, U.S. International Travel and Transportation Trends.
43 Note that the value of port services reported by the Bureau of Economic Analysis also includes services procured by foreign passenger carriers at U.S. ports and by U.S. passenger carriers at foreign ports.
44 JIT involves keeping materials on hand for only a few days or sometimes only a few hours of operation. In JIT inventory management, materials are delivered as needed in the manufacturing process and final products are shipped to distributors, wholesalers, and retailers as they are demanded by customers.
46 Includes services for both freight and passenger operations at ports. BEAs international transactions current account does not split out receipts for goods and services purchased at U.S. ports by foreign carriers into revenues for freight and for passenger services. For example, when a foreign air carrier buys fuel and services at a U.S. airport, that air carrier could use the purchased goods and services for both its passenger and freight operations.