Spotlight on recent trends in Freight costs

Statistics about international trade in goods and services, on a balance of payments and international trade basis

Released

4/05/2023

Source

International Trade in Goods and Services, Australia, March 2023

Introduction

This article provides insights into recent trends in the value of imports of freight services using detailed data from the International Trade in Goods and Services (ITGS) publication.

International trade of freight services measures the value of the transportation service provided to move goods from the border of the exporting country to the border of the importing country. Air and sea freight services are generally owned and operated by non-Australian residents, leading to Australia’s imports of freight services being substantially higher than its exports.

Imports of freight services are measured indirectly from Customs declarations data reported to the Australian Border Force when goods are imported to Australia. On the Customs form, importers (or their agents) are required to report the value of imports on 2 bases:

Free on board (FOB) - includes the transaction value of the goods, the value of outside packaging (other than international containers used for containerised cargo), and related distributive services used, up to and including loading the goods onto the carrier at the customs frontier of the exporting country.
Cost, Insurance and Freight (CIF) - equal to the FOB transaction value, plus the cost of freight and merchandise insurance involved in transporting the goods beyond the place of export to the customs frontier of the importing country.

The value of Freight services imports are derived by deducting the FOB value from CIF and removing the value of insurance by applying a ratio estimation.

Overall trends in freight services

Freight services costs surged during the COVID-19 pandemic as a result of global supply chain disruptions¹. The ABS Business Conditions and Sentiments publication showed that in June 2022, more than two in five businesses (41%) faced supply chain disruptions, which had remained relatively steady since it peaked in January 2022 (47%). Various factors contributed to this increase, including continued lockdowns, labour shortages, increased demand for commodities, high shipping container prices, and port congestion².

As a result of supply chain disruptions, the value of Australia’s imports of freight services reached a record high $2.6b (seasonally adjusted, current prices) in August 2022.

Figure 1 shows the value of imports of freight services as a percentage of the total value of imported goods. Prior to the COVID-19 pandemic, this ratio was relatively stable, ranging between 3% - 4%. Following the onset of the COVID-19 pandemic this increased to around 4%-5% and reached a high of 7% in February 2022. Freight services values as a proportion of total import values started to stabilise in February 2022 before falling for six consecutive months from September 2022.

Figure 1 - Cost of freight as a proportion of total import value (a)
	Cost of freight as a proportion of total import value (%)
Jan-19	3.7
Feb-19	3.6
Mar-19	3.7
Apr-19	3.4
May-19	3.5
Jun-19	3.5
Jul-19	3.5
Aug-19	3.5
Sep-19	3.4
Oct-19	3.5
Nov-19	3.7
Dec-19	3.6
Jan-20	3.7
Feb-20	3.8
Mar-20	3.9
Apr-20	4.4
May-20	4.6
Jun-20	4.3
Jul-20	3.9
Aug-20	4
Sep-20	4
Oct-20	4.1
Nov-20	4.2
Dec-20	4.6
Jan-21	4.5
Feb-21	4.6
Mar-21	4.6
Apr-21	4.6
May-21	4.6
Jun-21	4.7
Jul-21	5
Aug-21	5.2
Sep-21	5.8
Oct-21	6
Nov-21	6.4
Dec-21	6.4
Jan-22	6.6
Feb-22	7
Mar-22	6.6
Apr-22	6.3
May-22	6.4
Jun-22	6.4
Jul-22	6.5
Aug-22	6.6
Sep-22	6.6
Oct-22	6.3
Nov-22	5.9
Dec-22	5.4
Jan-23	5.1
Feb-23	4.8
Mar-23	4.6

Figure 1 - Cost of freight as a proportion of total import value (a)

["","Cost of freight as a proportion of total import value"]

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(a) Include cost of insuring goods during transit.

Increased freight prices led to the rise in the cost of imports of freight services. Given Australia is a large importer of goods, the recent trends in freight services and associated prices could be a contributing factor to the current high inflationary environment. Using detailed data from the ITGS publication, freight services can be further disaggregated to a product level using the Standard International Trade Classification (SITC). Analysis for selected commodities are presented below.

Freight services for consumer durable goods

Figure 2- Selected consumer durable goods – freight costs as a proportion of total costs (a)(b)
	Clothing and footwear (%)	Large household appliances (%)	Small household appliances (%)	Furniture (%)	Road vehicles (%)	Electrical machinery, nes (%)
Jan-19	2.7	5.3	2.4	6.1	3.6	2.9
Feb-19	2.4	4.9	2.4	5.9	3.4	2.9
Mar-19	3.2	5	2.6	5.9	3.4	3
Apr-19	3.1	4.9	2.5	5.6	3.4	2.8
May-19	3	5.2	2.8	5.4	3.4	2.9
Jun-19	2.8	4.9	2.6	5.3	3.5	2.8
Jul-19	2.7	4.6	2.3	5.1	3.3	2.8
Aug-19	2.6	4.9	2.4	5.4	3.4	2.9
Sep-19	2.7	4.9	2.3	5.8	3.4	2.7
Oct-19	2.8	5.3	2.6	6.1	3.4	2.9
Nov-19	3	5.7	2.8	6.3	3.4	3.2
Dec-19	2.9	5.2	2.9	6.2	3.3	3
Jan-20	2.6	5	2.4	6.2	3.5	2.7
Feb-20	2.5	5.3	2.6	6.2	3.5	2.9
Mar-20	3.2	5.3	2.2	6	3.5	3.2
Apr-20	3.2	5.3	2.7	5.9	3.7	3.4
May-20	11.7	5.8	2.8	6	3.8	3.6
Jun-20	4.8	5.8	2.6	6.1	3.9	3.4
Jul-20	3.3	5.9	2.7	6.4	3.6	3.3
Aug-20	3.4	5.5	2.4	6.6	3.4	3.4
Sep-20	3.4	5.7	2.4	6.7	3.4	3.4
Oct-20	3.6	6.4	3	7.8	3.5	3.5
Nov-20	4.4	6.9	3.3	9.4	3.3	3.8
Dec-20	4.3	7	3.6	10.5	3.4	4
Jan-21	4.1	7.4	3.1	10.9	3.5	3.9
Feb-21	4.1	8.2	3.5	11	3.4	4.1
Mar-21	4.1	8.4	3.1	10.4	3.4	4.3
Apr-21	5	7.8	3.8	10	3.5	4.2
May-21	4.7	8.1	3.8	10.3	3.5	4.2
Jun-21	4.6	8.5	4	10.7	3.4	4.4
Jul-21	4.6	8.3	4.3	11.6	3.6	4.5
Aug-21	4.9	8.3	5	14.1	3.7	4.7
Sep-21	5.1	11.2	5.6	15.5	4.1	5.3
Oct-21	5.9	11.6	6.3	17.3	4.5	5.7
Nov-21	6.8	13.2	6.7	17.8	4.5	6.1
Dec-21	6.5	12.6	6.5	18.6	4.2	6.2
Jan-22	6.2	12.8	7	18.3	4.4	6.1
Feb-22	5.9	15.9	7.9	19	4.1	6.5
Mar-22	6.3	15.3	6.9	17.7	4	6.7
Apr-22	7	16.4	6.4	18	4.1	6.7
May-22	7.1	16.4	7.2	17.2	4.3	6.8
Jun-22	6.5	13.8	7.5	17.7	4.5	6.7
Jul-22	6.5	13.7	7.8	18.4	4.5	6.5
Aug-22	6.1	13.9	7.1	18.7	4.6	6.3
Sep-22	5.8	14.9	7.1	18.3	4.6	6.3
Oct-22	5.8	15.6	7.5	16.6	4.7	6
Nov-22	5.5	15.1	6.6	14.5	4.6	5.5
Dec-22	4.9	13.5	6.1	11.1	4.1	5
Jan-23	4.5	11.2	5	9.1	3.8	4.2
Feb-23	4	7.6	5	8	3.9	3.9
Mar-23	4.2	7.2	3	7	3.8	3.9

Figure 2- Selected consumer durable goods – freight costs as a proportion of total costs (a)(b)

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(a) Include cost of insuring goods during transit.
(b) Large household appliances is the combination of selected SITCs (77521,77511,72471). Small household appliances is a combination of selected SITCs (77587,77584 851671-851679. Clothing and footwear is the combination of SITCs (84 and 85).

Consumer durable goods were in high demand during the COVID-19 pandemic as households shifted away from spending on services, such as travel and recreation, where pandemic related restrictions were imposed. The high demand for goods combined with supply chain disruptions (e.g. port congestion and shipping container shortages) led to huge rises in the cost of freight services. The value of freight services as a proportion of the total import value for furniture recorded strong increases over 2020/21, increasing from around 6% to peak at 19% in February 2022. Large household appliances, which includes refrigerators and washing machines, peaked at 17% in May 2022. The value of freight services for these goods fell dramatically from September 2022 as supply constraints and pricing pressure eased over 2022.

The value of freight services for road vehicles showed little change throughout the pandemic, remaining between 3% and 5% of total import costs. Transportation of road vehicles were less affected by high prices of shipping containers as the transportation of road vehicles is primarily carried out via roll on/roll off cargo ships.

Freight services for clothing and footwear spiked in May 2020 reflecting high demand imports of personal protective equipment (PPE). More expensive forms of transportation were utilised to quickly acquire PPE as part of the Government’s efforts to manage the first wave of COVID-19.

Raw material inputs freight cost

Figure 3 – Selected raw materials – freight costs as a proportion of total costs (a)
	Non-metallic mineral manufactures, nes (%)	Iron and steel (%)	Rubber manufactures, nes (%)	Cork & wood manufactures (%)	Manufactures of metals, nes (%)	Plastics in primary forms (%)
Jan-19	8.0	5.5	4.4	5.2	4.5	4.0
Feb-19	8.2	5.8	4.4	5.5	4.2	4.2
Mar-19	7.5	5.6	4.6	5.8	5.4	4.2
Apr-19	7.3	5.5	4.4	5.3	4.3	4.2
May-19	8.1	5.4	4.4	5.3	4.1	4.1
Jun-19	7.5	5.6	4.5	5.0	4.0	3.7
Jul-19	7.8	5.4	4.3	5.1	4.1	4.0
Aug-19	8.0	5.2	4.2	5.3	4.8	4.1
Sep-19	7.6	5.6	4.5	5.4	4.5	4.2
Oct-19	8.0	5.6	4.4	5.6	4.7	4.3
Nov-19	7.8	5.5	4.5	6.0	5.1	4.4
Dec-19	8.3	5.9	4.6	5.7	5.3	4.3
Jan-20	8.7	5.9	4.4	5.8	5.2	4.4
Feb-20	7.8	6.1	4.5	6.4	5.4	4.7
Mar-20	9.2	6.3	4.8	6.4	4.9	4.6
Apr-20	9.3	5.8	4.8	6.4	4.9	4.8
May-20	9.2	5.9	5.0	5.8	5.0	4.8
Jun-20	8.2	5.5	4.8	5.8	5.3	4.8
Jul-20	8.6	5.5	4.7	5.9	5.3	4.9
Aug-20	9.4	6.0	4.8	6.1	5.2	5.1
Sep-20	8.9	6.5	4.7	6.3	5.5	5.0
Oct-20	8.5	6.7	4.9	6.8	6.0	4.9
Nov-20	8.6	6.8	5.3	7.7	6.2	5.3
Dec-20	10.5	7.6	6.0	8.1	6.4	5.7
Jan-21	10.7	7.6	6.3	8.2	6.5	5.9
Feb-21	11.2	7.5	6.6	8.5	6.7	5.9
Mar-21	10.4	8.2	6.3	9.0	6.9	5.7
Apr-21	10.4	7.4	6.3	8.8	6.7	5.4
May-21	11.3	6.7	6.2	9.4	6.8	5.3
Jun-21	11.7	7.2	6.5	9.7	7.3	5.4
Jul-21	12.5	7.2	6.8	9.2	7.6	6.0
Aug-21	14.0	7.6	7.3	11.9	8.2	7.4
Sep-21	14.1	8.2	8.7	12.9	9.3	7.4
Oct-21	15.6	7.7	9.2	13.7	10.6	8.3
Nov-21	15.9	8.5	10.3	15.1	10.9	8.5
Dec-21	15.8	8.8	10.5	15.2	10.8	8.9
Jan-22	16.8	9.7	10.1	15.1	10.5	9.5
Feb-22	16.5	10.0	12.1	16.0	10.7	9.7
Mar-22	17.1	11.4	11.1	17.0	11.3	10.8
Apr-22	17.5	10.9	11.0	17.4	11.0	10.3
May-22	16.6	10.7	10.5	16.2	10.6	10.1
Jun-22	16.6	10.8	11.2	16.0	11.6	10.8
Jul-22	16.9	11.2	11.6	16.2	11.1	11.1
Aug-22	16.9	10.8	10.4	14.6	10.7	11.2
Sep-22	16.4	11.4	11.9	14.4	10.5	12.0
Oct-22	16.0	11.5	10.4	13.5	10.7	11.8
Nov-22	15.1	10.6	10.0	11.4	8.8	10.6
Dec-22	14.0	9.5	9.2	11.3	7.7	9.6
Jan-23	13.2	8.6	7.9	9.5	7.4	8.0
Feb-23	11.4	8.3	7.3	9.3	7.2	7.4
Mar-23	10.1	6.9	6.7	7.7	6.6	6.5

Figure 3 – Selected raw materials – freight costs as a proportion of total costs (a)

["","Non-metallic mineral manufactures, nes","Iron and steel","Rubber manufactures, nes","Cork & wood manufactures","Manufactures of metals, nes","Plastics in primary forms"]

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[]

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(a) Include cost of insuring goods during transit.

Higher freight services costs were also recorded for the importation of raw materials used for production. Most of these products experienced higher freight costs through 2021 and eased in the latter part of 2022. Building materials had more notable rises in freight costs compared to other raw materials. For example, the value of freight services as a proportion of the total import value increased for cork and wood manufactures from 6% prior to the pandemic to 17% in April 2022. Global and domestic supply of cork and wood manufactures decreased while demand increased due to a boom in new housing construction³. As a result, freight costs for this product rose faster than other categories. There were similar trends observed for Non-metallic minerals manufactures, nes which includes construction products such as tiles, marble, ceramics and granite.

Footnotes

This article has been authored by Rohan Puri and Ben Shrosbree (Balance of Payments, Services and Merchandise Trade). Any comments or questions on this article can be sent to balance.of.payments.queries@abs.gov.au

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