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Air freight prices to and from Asia

FRED Blog's 750th post looks to Marco Polo

Today, the FRED Blog offers its 750th post of engaging graphs from the FRED data library. To celebrate, we draw a serendipitous connection between historical and current economics.

In 1271, 750 years ago, Marco Polo first left Venice for Asia. In the spirit of this traveling merchant, the FRED Blog compares air freight costs to and from Asia, which is not as straightforward as you might think.

The FRED graph above shows the price index for air freight (cargo) reported by the U.S. Bureau of Labor Statistics: U.S. cargo outbound to Asia in blue and U.S. cargo inbound from Asia in red. Because this data series uses an index number, equal to 100 in the year 2000, we can’t compare the actual price levels for flying cargo back and forth between the U.S. and Asia. However, we can compare the rates of growth of air freight prices and point out some thought-provoking patterns.

Between 1992 and 2020, both inbound and outbound air freight prices moved nearly in lockstep. That should be expected if the back-and-forth routes are very similar. Then, between February and May 2020, the COVID-19 pandemic caused a large spike in prices due to the drop in overall international travel driven by health and safety protocols. However, since mid-2020, inbound air freight prices have maintained a faster rate of growth than outbound air freight prices.

The reason for this disparity? Supply and demand.

This article from the Bureau of Labor Statistics describes how air freight flies both in dedicated cargo planes and in the holds of passenger planes. Increased U.S. demand for COVID-19-related masks, gowns, and other personal protection equipment drove air shipping costs up at the same time that inbound passenger travel decreased.

If Marco Polo were collecting mementos from trips to Asia today, he would be paying significantly more to ship them home than he would to send thank-you gifts to Asia for the hospitality he received.

How this graph was created: Search for and select “Outbound Price Index (International Services): Air Freight for Asia.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “Inbound Price Index (International Services): Air Freight for Asia.” To change the line style of the series use the “Format” panel.

Suggested by Diego Mendez-Carbajo.

Goodbye LIBOR, hello SONIA

Changes in measuring international interbank borrowing

2021 is winding down, and new year’s resolutions are in the air. The FRED team is also thinking ahead to 2022, when it will update its data repository to reflect the discontinuation of several financial data series and the new  reliance on some replacement series.

This FRED news post provides the details of this transition. For example, 35 London interbank offered rate (LIBOR) benchmark rates produced by the Intercontinental Exchange (ICE) will no longer be calculated as of December 31, 2021. The Bank of England foretold this change in 2017 and is taking over the production of replacement series, including the Sterling Overnight Index Average (SONIA).

The FRED graph above shows the soon-to-be-discontinued overnight LIBOR in blue and its replacement, SONIA, in red. In short, both series are intended to reflect the interest rate at which banks could borrow money (denominated in British pounds, a.k.a. sterling) on unsecured terms in wholesale markets. The series are very similar in value, even though they’re calculated using different methodologies: LIBOR used a survey of large banks and SONIA is a trimmed mean of the relevant interest rates.

In the world of financial data, substituting one benchmark interest rate for another is a major endeavor. Know that FRED is at the ready to help data consumers adapt to these changes.

How this graph was created: NOTE: Data series used in this graph have been removed from the FRED database, so the instructions for creating the graph are no longer valid. The graph was also changed to static a image.

Suggested by Diego Mendez-Carbajo.

Semiconductor bottlenecks and prices

The tumultuous COVID-19-related events of the past two years have led to supply chain disruptions across nearly every industry. One notable consequence of these disruptions is the semiconductor shortage. This shortage has led to bottlenecks for many sectors, including automobiles, tech products, and home appliances. While demand in the U.S. was initially low during the COVID-19-induced recession in early 2020, the recovery has been marked by strong demand boosted by, among other things, accommodative fiscal and monetary policies.

In recent months, bottlenecks have made it difficult for input suppliers to keep up with strong demand, contributing to a sharp rise in intermediate goods prices, including lumber and some metals. Indeed, as the orange line in the FRED graph above shows, the producer price index of intermediate goods started rising immediately after the 2020 recessionary period and increased over 21% year-over-year in September 2021.

On the other hand, the dotted blue line measuring prices of semiconductors and other electronic components shows that these prices have remained relatively stable. This contrasting price response in the two indices shown in the graph is intriguing. While an explanation requires careful research, it is possible that long-term contractual relationships between producers of some final goods (such as iPhones) and their suppliers of chips may have helped mitigate fluctuations in the overall semiconductor price index. It seems that the recent scarcity of semiconductors has not been reflected in prices. There is evident excess demand and, thus, rationing.

How this graph was created: Search for and select “Producer Price Index by Industry: Semiconductor and Other Electronic Component Manufacturing.” Open the graph, click on “Edit Graph,” open the “Add Line” tab, and search for and select “U.S. Intermediate Goods PPI.”

Suggested by Subhayu Bandyopadhyay and Praew Grittayaphong.

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