Freight Rates Up 37 Percent
Inflation’s current lofty levels have not been seen for 40 years. Supply chain disruptions, labor shortages, increased money supply, low interest rates, international conflict, and strong consumer spending have all contributed to rising inflation. Two other troublesome factors are surging energy costs and shipping backlogs. Increases in these costs reverberate through the economy and can influence the price of many products and services. For example, increases in the cost of transporting building materials due to higher fuel costs results in increases in the cost of building materials. This, in turn, increases construction costs and the cost of housing.
The Cass Freight Index®, developed by Cass Information Systems, Inc., is a series of indexes which track the North American freight market. The indexes include all domestic freight modes and represent a broad sampling of industries from raw materials to finished goods. The indexes use January 1990 as a base month, so each monthly index point represents that month’s rates relative to January 1990. Figure 1 shows the Cass Inferred Freight Rate Index from January 2010 through February 2022 and the percentage changes in freight rates year-over-year. Figure 1 illustrates the sharp uptick in freight rates beginning in late 2020 and continuing into this year. Freight rates in February were up 37 percent compared to February of last year and set a record. Moreover, monthly increases have been consistently greater than 20 percent since mid-2021.
Figure 1. Cass Freight Rates Index, January 2010 – February 2022
Another inflationary factor is the rapid rise in overseas shipping rates along with the increases in waiting times at ports both in the U.S. and overseas. Figure 2 plots the quarterly rates for 20 and 40 foot containers since 2018. Rates were steady until last year when they jumped to $1,393 per container in the second quarter, a 72 percent increase. Port waiting times have also caused shipping delays and supply shortages, which have contributed to upward pressure on prices. Figure 3 shows waiting times over the past year for berths at the Los Angeles and Long Beach port, the nation’s busiest. Waiting times are also up in China due to COVID lockdowns at Chinese ports.
The war in Ukraine has exacerbated inflation through impacts on oil and natural gas markets. Inflation is expected to soften as the year progresses, but higher energy costs and shipping backlogs, because of their cascading effects through the economy, mean the softening will be slower than first thought. Farmers and ranchers will feel the pinch in both the cost of inputs and the cost of transporting grains and livestock.
Figure 2. Ocean Freight Rates – Los Angeles to Shanghai
Figure 3. Ship Waiting Times – Port of Los Angeles & Long Beach