4 Reasons Why Freight Rates Are Increasing Crazily
1. The impact of coronavirus is significant.
Unfortunately, coronavirus deaths in the U.S. per day once reached 5463 in February, and thousands of people died of this notorious pandemic. What’s worse, at least 15 states in the U.S. have reported Omicron cases which remain as unknown threats. In addition, there’s a potential risk that existing Covid-19 vaccines will not be effective enough to defend against Omicron.
2. Thousands of people lost their jobs during the pandemic.
The unforgettable burst of the coronavirus outbreak in 2020 led to an immense increase in unemployment. In detail, the unemployment rate of the U.S. hit a record high in April, 2020 which is even greater than the rate during the financial crisis in 2008. Furthermore, the labor force participation rate is recovering extremely slowly.
3. A trend of “revenge spending” occurs.
The pandemic has transformed the consumers’ purchasing behaviors. More people began to utilize the convenience of e-commerce platforms and online purchasing when waiting at home during lockdowns. And now, Apple may break their sales records even though the shortage of semiconductors hasn’t been solved. As a result, the port congestion problem will become more severe due to the upwarding demand.
4. Energy prices are soaring due to extreme weather.
According to the National Oceanic and Atmospheric Administration (NOCC), they forecast the possibility of El Niño of 2021; however, they end up finding out chances are greater than 87% that La Niña will occur starting this December and continue until February in 2022. In other words, the northern hemisphere will be even colder, aggravating the concern of energy capacity.
Freight rate skyrockets almost “3 times” in 2021.
The Freightos Baltic Index (FBX) was only at USD 3377 in the beginning of 2021, but the index is going up outrageously through the year. To be more specific, the FBX has turned to USD 9425 this December which is nearly 3 times higher compared with the index in January. However, if we take a glimpse of China – U.S. West Coast rates, the price falls sharply, even 28% lower in only 3 months. Therefore, from our point of view, although the rate is surging in 2021, it has alleviated recently.
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The price level may remains really high for a long time.
The inflation rate of the U.S. hit a 31-year high in October, which is 6.2%. Apparently, the price of new cars or houses greatly impacts people’s disposable income. Moreover, the rising raw material cost is also being affected by the supply chain crisis. Now, container ships are busy shipping holiday goods all over the world, and the congested port makes it hard to boost the flow of goods. To sum up, the high transportation cost also intensifies the inflation in the U.S..
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3 Insights That Cause Higher Than Expected Inflation In October!
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