Global Maritime Shipping Rates Easing, But Remain Historically High
RedStone Resource
August 3, 2022
Inside This Edition
Global Maritime Shipping Rates Easing, But Remain Historically High
There are many sources showing a year-over-year chart of containerized shipping rates between Asia and the US and those charts show the rate plummeting. But this, and many metrics across the broader global economy, are showing an interesting phenomenon that we are going through.
Producer Prices in Transportation Remain High
Truckload prices were down just slightly from their all-time highs at 207 points, down from 211 points hit in March and May of this year. Prices were down 1.9% month-over-month but were 30% higher year-over-year.
Diesel Inventories Remain Tight, But Diesel Prices Ease on Lower Oil Prices
US diesel prices have inched up slightly but remain arguably at their lowest levels in nearly 15 years. This has kept diesel prices at the upper end of their historic pricing range, despite oil and gasoline prices coming down moderately.
ECONOMIC BRIEFING
Manufacturing Activity Slows Slightly in July; But Remains in Growth Territory
US manufacturing activity slowed moderately in July; the S&P Global PMI slipped from 52.7 to 52.2. Although slipping sequentially month-over-month, the index remained above 50 and the sector was still growing moderately. The greater concern is that input prices were still rising sharply for manufacturers in July primarily due to raw materials, energy, and labor costs. But their ability to pass those higher costs on to customers was muted, it was much more difficult to get price hikes to “stick”.
New orders were also down and investments in areas like business equipment and machinery were “markedly lower” according to S&P Global. Business investment is important, especially if the consumer side of the economy slows, and there are hints that businesses are starting to pull back slightly on investment. The latest data from the Census Bureau on business capex spending showed that it was still stable and were trending positively in June, but that data is delayed by a month. The PMI survey data is from activity in July, and it could be giving us the first hints of slowing in business spending.
Global Maritime Shipping Rates Easing, But Remain Historically High
There are many sources showing a year-over-year chart of containerized shipping rates between Asia and the US and those charts show the rate plummeting. But this, and many metrics across the broader global economy, are showing an interesting phenomenon that we are going through. Shipping rates have dropped 32% year-over-year, but the rate for a container moving between Shanghai and LA is still at $7,199 dollars (based on the WCI Benchmark Index) which is still 3 times higher than it was in 2019.
Many economists are debating the use of macro data at this time, and the best way to interpret it. It is important to keep metrics in perspective because there are trends that are indeed recessionary and many that are part of a normalization trend (growth is still ongoing but is decelerating back into a range that was commensurate with the pre-pandemic periods). Shipping costs are certainly in the latter camp.
TRANSPORTATION BRIEFING
Producer Prices in Transportation Remain High
The Producer Price Index is derived from monthly surveys of users of various transportation services across three areas (rail, truckload, and less-than-truckload). Generally, the indexes remained elevated on a historical basis through the end of June. For instance, the less-than-truckload PPI hit 428.4 points, which was an all-time high. This was 0.9% higher month-over-month and was still 20.6% higher year-over-year. This price index includes spot, contract, and fuel surcharges. But, when stripping out the impact of fuel, the index was still 6-7% higher year-over-year.
Truckload prices were down just slightly from their all-time highs at 207 points, down from 211 points hit in March and May of this year. Prices were down 1.9% month-over-month but were 30% higher year-over-year. Some areas of the country were seeing spot shortages of TL capacity, but with harvest activity largely between seasons, capacity has loosened up slightly.
Rail prices were also touching all-time highs in June and were 0.5% higher month-over-month and were 11.1% higher year-over-year. Rail capacity is tight in certain regions of the country and especially tight near port zones. Drayage capacity getting freight moved between ports and rail dock operations are creating more bottlenecks again at this time.
Diesel Inventories Remain Tight, But Diesel Prices Ease on Lower Oil Prices
US diesel prices have inched up slightly but remain arguably at their lowest levels in nearly 15 years. This has kept diesel prices at the upper end of their historic pricing range, despite oil and gasoline prices coming down moderately. Diesel prices were still $5.26 nationwide, which is down from their all-time high of $5.82 hit on June 19th, but they remain 59% higher year-over-year.
Oil prices are still elevated, but they have stabilized over the past two weeks despite a continued drop in oil inventories. West Texas Intermediate is currently trading at $95 a barrel (31% higher YTD and 47% higher year-over-year), Brent North Sea Crude is over $100 a barrel. The Strategic Petroleum Reserves (SPR) have fallen to levels not seen since the 1980’s and total petroleum stocks (including the SPR) are the lowest since 2008).
Fuel surcharge rates are still 64.3% higher than they were a year ago, but they started a deceleration trend as they fell 4.7% between June and July.
The US has been fortunate that it has not faced a difficult hurricane event in the Gulf region where many refiners are located. With inventories low and demand stable, even a small event would have a sizeable impact on diesel prices.
