Cross-Hauling

Generically speaking, cross-hauling is the concurrent trade of the same product or service in reverse directions [Page 445]over the same route. For instance, the import and export of an identical product or service by a specific country at the same time is a type of cross-hauling. However, it should be noted that there are different sorts of cross-hauling. There may be cross-hauling of foreign direct investment (FDI) or capital, normally resulting from technological differences or differences in governments' tax and tariff policies; suburb-to-suburb cross-hauling, when residents of the suburbs cross the city in the opposite direction every morning on their way to work; duty-free cross-hauling, when duty-free goods purchased on the outbound journey are brought back for consumption at home; and even cross-hauling of polluting factors. Here we will discuss cross-hauling from a trade perspective.

Cross-hauling of goods can occur for a variety of reasons. For instance, some goods, such as vegetables and fruit, are both imported and exported. Some of this cross-hauling can be explained easily by proximity to a border. For example, it may be cheaper for retailers in the south of France to obtain their vegetables and fruit from Spain, at the same time that producers in the north are sending some of their output to Belgian consumers.

Product differentiation is another reason. While some consumers may prefer Gala apples, others may have a preference for Fuji apples, and because these two varieties have different geographic origins, cross-hauling will occur. If each product were completely homogeneous there would be no reason for cross-hauling to exist. For example, if automobiles were homogeneous, consumers in the United States would buy only Ford and GM cars and consumers in Germany would buy only Mercedes and BMW. In reality, however, automobiles are quite heterogeneous. Mercedes are shipped into the United States and Fords are shipped in the other direction.

In countries where vertical differentiation greatly exceeds horizontal, such as India, China, and Brazil, it is not surprising that these countries are likely to export low-quality apparel and import high quality, for example, or to be part of globally or regionally integrated supply chains. Products with strong brand image and consumer loyalty are implausible candidates for substitution, explaining much of the existing cross-hauling.

Where there are a large number of competing manufacturers serving a small geographic area, each one using a different carrier operating less than truckloads, on a single road segment containing several stops, the possibility of cross-hauling increases. In the case of a retailer, poor sales forecast per store may imply the removal of surplus stock back to the distribution center. Finally, there are industries in which the range of products is so large that an individual manufacturer or even a cluster of local producers cannot compete effectively in all segments of the industry.

If we accept that cross-hauling is the act of shipping the same good in opposite directions at the same time, then it seems clear that much of it is stimulated by low trade barriers, public policy to promote competition, consumer acceptance, and the interest of transport companies (railroads, haulers) to boost their traffic. Trade between different regions and countries is generally beneficial because it allows for scale economies and makes markets more competitive. An increase in trade of similar products, driven by profit margins perceived by each firm in external markets, is hence expected and cross-hauling is therefore unavoidable in facilitating the permanent adjustment of supply and demand.

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