What Is the Freight Index and How Does It Concern Me?

Economists use indexes quite frequently to distill vast amounts of information and detailed observations down to digestible talking points. For example, pundits use consumer price indexes as a barometer to determine the success or failure of an administration or piece of legislation.

The freight index is a similar mathematical and economic construct. Analysts and consumers talk about the freight index less frequently than consumer price indexes, but it’s no less important.

Freight indexes weigh the economic, practical, and social elements impacting the cost, speed, and productivity of moving goods from one point to another.

What Are Price Indexes?

You might be more familiar with a different index. The media and consumers more frequently report the consumer price index, or CPI. The CPI measures changes over time in how much typical consumers pay for essential products and services.

The CPI is expressed as a figure without units of measure – for example, “141.0”. It describes the “health” of the industry by studying a small portion of it. This includes both the part consumers see and the parts only manufacturers, distributors, and supply-chain operators see.

There are indexes available for countries, states, and cities depending on the granularity of the available data. CPI is not a straight cost-of-living index, but analysts often use it as one.

Understanding How Freight Rate Indexes Differ

Freight indexes are similar to consumer price indexes. Instead of measuring the burden of sourcing, distributing, and purchasing essential goods – food, energy, personal-care products, etc. – freight indexes measure the general “health” of shipping infrastructure. A freight index represents the entire volume of freight handled by the for-hire transportation industry.

Here are some of the most widely used freight indexes in the global economy right now:

• Freight Transportation Services Index
• Shanghai Shipping Exchange (SSE) indexes
• China Import Containerized Freight Index (CICFI)
• FBX Freightos index
• World Container Index
• S&P Global Platts Container Rates (PCR)

The average consumer doesn’t purchase freight and logistics services. However, their standard of living very much depends on the “health” of local and global freight infrastructure. This means it’s worth understanding how freight indexes for your country or region are measured and what they can tell you about the current and future health of the economy where you live.

As we’re about to see, the condition of the freight industry can be a canary in the coal mine for the rest of the economy.

What’s Happening With the Freight Index Right Now?

Those working or interested in the freight, distribution, and logistics sectors may be wondering what’s going on with the freight index right now. The news recently has been packed with stories concerning inflation, food and beverage shortages, shipment delays, labor negotiations, and more. What does this mean for people ordering goods from afar and the people working to deliver those goods?

The U.S. Bureau of Transportation Statistics has mostly good news as global commerce gets back to pre-pandemic normalcy. These are the numbers for May 2022, according to the most recent Freight Transportation Services Index:

• Growth from March 2020 to March 2021 was just 0.5%.
• However, March 2021 to March 2022 saw the index rise by 3.8% – meaning far faster growth is occurring this year.
• From February to March, the freight index rose by 0.7%.
• This is the seventh straight month of growth.

Altogether, the freight indexes and metrics used by the Bureau of Transportation Statistics point to a strong rebound now that the global COVID-19 pandemic is behind us.

The freight shipment index for March 2022 stood at 141.0, which exceeds the March 2019 benchmark of 138.2, and is fast approaching the “all-time” high – recorded in August 2019 – of 142.0. The low point measured during the pandemic was April 2020’s 125.3.

How Does the Freight Index Impact Consumers?

When did you last drive to the grocery store for a carton of eggs or a pre-made meal? Did you think about all of the tasks that other human beings had to carry out to make it possible? You can better understand why freight indexes are so important when you break down your portion of the supply chain and freight industries into observable steps:

• Somebody sourced and imported the rubber in your shoes.
• Somebody else assembled them and someone else shipped them.
• Manufacturers make most of the components in consumer vehicles far away.
• Somebody miles away, maybe even in another country, picked the fruit customers buy in the grocery store. Countless logistics and shipping employees helped transport that fruit from the farm to the store.
• Multiple disparate supply chains had to converge to result in the pre-made salad, guacamole, submarine sandwich, or Whitman’s sampler you just picked up off the shelf.

This is just a tiny fraction of the goods you interacted with during a small portion of one run to the grocery store.

Currently, many of the processes required to source, process, fabricate, and transport the ingredients or components in food and household goods are seeing their supply chains greatly disrupted. The global pandemic was one catalyzing event resulting in poorer-than-usual freight indexes and slower-than-ever delivery times.

To get a sense of why prices for everything are so high right now – including freight itself – let’s look at some of what’s going on in the global supply chain and freight industry.

Factors Affecting the Freight Index in 2023

• Striking port workers in Europe: The U.K. is playing host to ongoing labor negotiations, and Germany has just settled a work stoppage of its own after port operators went on strike to demand safer conditions and better pay.
• Heat and droughts affecting shipping: Major trade thoroughfares along Germany’s Rhine River are unreachable in 2023. Environmentalists are warning about similar disruptions in the future in other regions.
• Reduced manufacturing throughput: China powers much of world commerce. Factory closures there due to droughts and port troubles can have a major impact on global price indexes. Economic growth in China was half of expectations in the first half of 2022.
• Labor negotiations in the United States: Labor and management in the U.S. are having a standoff of their own. The Biden Administration is closely watching contract negotiations that could slow or stop workflows at West Coast ports for many more weeks.

The Freight Index and You

Now you know a bit more about how freight indexes are used, why they’re important, and what they mean for your lifestyle and livelihood. It might not sound like it, but the supply chain industry is fascinating, fast-paced, and striving for significant new innovations. It’s always looking for thoughtful and driven individuals who can bring the industry into modern times. If you want to play a role in helping our supply chains run smoothly, parlay your STEM education into an interesting career in freight and supply chain management.