- The dollar-amount spent by shippers, such as manufacturers or retailers, on shipping their goods jumped by 13% in December from a year earlier.
- It has driven the Cass Freight Index of Expenditures to a new record (red line). The amount spent on freight is a function of shipment volume and freight rates.
- The Cass Freight Index covers shipments by all modes of transportation.
- But is heavily concentrated on shipments by truck, with truckload accounting for over half of the expenditures, followed by less-than-truckload (LTL), rail, parcel services, etc.
A recent news article published in the Wolf Street, written by Wolf Richter highlights the rates for trucking, ocean containers, airfreight, parcels, and the surging costs for shipping consumer & industrial goods.
The freight rates
The freight rates embedded in the index jumped by 6.0% in December compared to a year earlier. “Based in part on spot trends, the acceleration in freight rates is likely to persist in the coming months,” Cass said in the report.
Shipment volume surged 6.7% year-over-year, given the Pandemic shift in consumer spending to goods that need to be shipped, from services that are not shipped.
But shipment volume in December (red line in the chart below) remained below the levels of 2018 (black) and 2017 (brown) at this time of the year.
What happened before pandemic?
Before the Pandemic, roughly half of all air freight was carried in the belly holds of passenger planes.
When airlines parked their passenger aircraft in March and April, they removed that freight capacity from the market, with massive effect.
For example, from February to May the average rate from Hong Kong to North America shot up by 142% from $3.19 per kg to $7.73 per kg.
As airlines began stuffing passenger compartments with freight, and as they began flying more planes, the spike began to wind down.
But in October, prices began to spike again. In December, they hit $7.50 per kg, up by 107% year-over-year.
Retail sales
Retail sales (goods) in December rose by 4.8% from a year earlier to a record $620 billion (“not seasonally adjusted,” red line in the chart below).
Everyone got sidetracked by the dip in “seasonally adjusted” retail sales.
That dip was likely due to seasonal adjustments that had gone awry, particularly for ecommerce, due to the massive distortions in spending during the Pandemic.
Container rates
Container rates to the US West Coast, which account for 20% of the SCFI, rose to a new record of $4,054 per FEU (Forty-foot-Equivalent Unit), a standard measuring unit in the shipping industry. Chart of the SCFI via Shanghai Shipping Exchange.
FedEx Freight
FedEx increased its rate for FedEx Freight by an “average” of 5.9%; and for FedEx Express, FedEx Ground, and FedEx Home Delivery by 4.9%. Surcharges increased between 3.2% and 9.3%.
Among a slew of other increases, it imposed a new residential delivery surcharge (effective February 15). UPS increased its rates for Ground, Air, and International on “average” by 4.9%, in addition to other increases of fees and surcharges.
Collapsed freight rates
And container carriers – having gone through a multiyear crisis of overcapacity and collapsed freight rates that sent some of the larger ones into bankruptcy, such as Korean carrier Hanjin in 2016 – have not sufficiently invested in containers.
Hence the current container shortage, and were purposefully slow in adding idled capacity in 2020, when demand surged, loving the resulting spike in freight rates all the way to the bank.
Did you subscribe to our daily newsletter?
It’s Free! Click here to Subscribe!
Source: Wolf Street
