Today, shipping costs have come back down to Earth, with some routes approaching pre-pandemic levels. The graphic above, using data from Freightos, shows just how dramatically costs have fallen in a short amount of time. The Freightos Baltic Index (FBX)—a widely recognized benchmark for global freight rates—has fallen 80% since its peak in late 2021.
Why Shipping Costs Matter
The vast majority of trade is conducted over the world’s oceans, so skyrocketing shipping costs can wreak havoc on the global economy. A recent study from the IMF, which included 143 countries over the past 30 years, found that shipping costs are an important driver of inflation around the world. In fact, when freight rates double, inflation increases by 0.7 of a percentage point. Of course, some nations feel the effects of higher shipping costs more acutely than others. Countries that import more of what they consume and that are more integrated into the global supply chain are more likely to see inflation rise as shipping costs elevate.
Falling Freight Rates Are a Good Thing, Right?
Falling shipping costs are great news for everyone except, well…shippers. While most of us can eventually look forward to improved supply chain efficiency and less inflationary pressure, shipping companies are seeing the end of a two-year boom period. For example, major shippers like COSCO and Hapag-Lloyd saw a staggering 10x or more increase in profit per 20-foot equivalent unit (TEU) shipped. For the time being, carriers are canceling voyages and sending obsolete ships to scrap to keep prices from bottoming out completely. In early January, container spot freight rates rose for first time in 43 weeks, signaling that the rollercoaster ride that shipping rates have been on since the start of the pandemic may be coming to an end.
