Freight Costs Are Returning to Pre-Pandemic Levels

Easing shipping costs relax producer pricing pressures...

Earlier this month, we highlighted the U.S. Bureau of Labor Statistics' latest Producer Price Index ("PPI") report. The data showed that price growth continued to drop at a rapid pace, with the index recording its weakest rise in costs since March 2021...

Shipping costs climbed to historic highs in the second half of 2021 and remained elevated through the first half of last year. Now it looks like they've finally come back down to pre-pandemic levels.

The Freightos Baltic Index (FBX)—a widely recognized benchmark for global freight rates—has fallen 80% since its peak in late 2021. The FBX works in cooperation with the Baltic Exchange to comprise an aggregate of real-time market rates from global freight carriers.

Take a look…

And for a closer look at the yearly comparison, take a look below…

FBX captures shipping routes to and from 12 different global regions. Here are charts of the top six major global shipping routes…

Now look at the percentage decline from its most recent quarterly peak...

As you can see, pricing pressures are down significantly from just the last quarter.

The average percent change in peak-to-recent price from the six major shipping routes is about a 37% decline.

That's important, as shipping costs are a key driver of inflation. The International Monetary Fund estimates that when freight prices double, annual inflation rates increase by 0.7%.

On the other hand, when freight rates are cut in half, we see inflation rates come down as well.

The decline in freight prices over the past year has fueled the recent dramatic drop in the PPI. But it also points to even further deterioration in producer price gains this year.

Look at the directional relationship between the FBX and PPI…

Remember, as costs for producers fall, those savings get passed on to consumers – which means we could see more price stability throughout the economy.

Even more, it shows the Federal Reserve that major factors of inflation are starting to cool. This could give the central bank the confidence it needs to pull back on its rate hikes – and even start to consider cutting rates towards the latter part of the year.