Maria-Jose Carreras-Valle: The Costs of Delivery Delays

The Moynihan Institute’s program for Trade, Development and Political Economy welcomes Maria-Jose Carreras-Vall, assistant professor of economics at Penn State University. Carreras-Valle will discuss her joint paper “The Costs of Delivery Delays,” which is co-authored by Alessandro Ferrari from the University of Zurich.

Since 2018, there has been a consistent decline in the distance traveled by U.S. manufacturing imports, reaching a level not observed since 2008. This trend is the result of the substitution away from imports from China and towards imports from closer countries. At the same time, U.S. manufacturing inventory-to-sales ratio has continued to rise. These trends are at odds with the literature which finds that reductions in the distance of imports are associated with a decline in inventories.

We argue that a rise in delivery time risk, driven by longer and more frequent delays and supply disruptions, can reconcile these trends. We do so in the context of a model of global sourcing with stochastic delivery times and inventories. Firms trade off the lower price of farther inputs with the increase in exposure to demand risk and a higher risk of delays. In response, firms increase their inventories. Yet, as delivery time risk rises, firms substitute away from farther inputs and near-shore.

While the composition effect decreases incentives to hold inventories, the rise in delivery risk pushes firms to increase their total inventory stock. We calibrate the model to quantify the costs of the increase in delivery delays in terms of output, prices, and firms' sourcing choices in the post-Covid time.

Maria-Jose Carreras-Valle is an assistant professor of economics at Penn State University. She completed a Ph.D. at the University of Minnesota in 2022. Her research focuses on international economics and trade, with a specific interest in understanding how uncertainty impacts trade dynamics. Through her work, Maria-Jose seeks to shed light on complex issues in global markets, contributing valuable insights to the field of economics.