Shipping Container Freight Rate Inflation Slows, But...

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by Tyler Durden
Monday, Aug 16, 2021 - 09:20 PM

With international container shipping rates blowing out like never before amid chaos in Transpacific shipping due to massive port backlogs and production delays in China due to a resurgence of COVID-19, new data suggests the rate of increase in container shipping prices is slowing, according to Bloomberg

The five-week average increase in the WCI Composite Container Freight Benchmark Rate shows the upward momentum in prices has been waning since mid-July. The rate is about 1.4 percentage points, a considerable change from early July when it was around five percentage points. 

Bloomberg points out, "market is also anticipating inflation to be higher in the near term, but expect it to be transitory, buying into the Fed's narrative." 

Looking at inflation swaps and the U.S. breakeven curve, rate traders expect lower inflation down the road. The chart below shows inflation swaps at 3% in a year, but then slumping back to 2% the years after.

On a seasonal basis, container rates tend to increase this time of year as retailers stock up on goods ahead of the holiday season. 

With container rates slowing today, the question is whether prices have peaked or if the next leg up is imminent?

That would be good news for the American consumer, whose confidence and buying attitudes just collapsed, but Goldman Sachs is pouring cold water in this hope, explicitly warning that "port closures or stricter control measures at ports could also put further upward pressure on shipping costs, which are already very high."