Brief: Shipping Costs Hit 16-Month Low

Mobius Intel Brief:

The Federal Reserve held the target range for the federal funds rate at 4.25%-4.50% yesterday, citing expectations that the Trump administration’s tariff policy will lead to higher inflation and rising unemployment.

By grounding yesterday’s decision in expected outcomes, Fed governors departed from the (more) concrete economic data used in previous policy meetings, such as the Fed’s preferred inflation indicator—the Core Personal Consumption Expenditure (PCE) index.

• Core PCE (stripped of food & energy items) showed price growth was flat (0%) M/M and just 2.6% Y/Y in March—the lowest annualized rate since early 2021 when supply chain shocks kicked off decades-high inflation.

While March inflation data could be an outlier, the latest data on energy and other supply chain drivers of price growth suggest short-term inflation could surprise to the downside.

Supply Chain Snapshot

Transportation Fuels: Global crude benchmarks weakened to multi-year lows in May, and prices for transportation fuels and petroleum-derived feedstocks have largely followed suit. U.S. retail gasoline and diesel prices are approaching their lowest levels since 2021.

Freight Rates: Global container freight rates collapsed early this year after the 2H24/1Q25 surge in consumer goods imports. Rates will likely continue their slide as supply chain congestion eases in the Suez Canal and Panama Canal (more below).

• This week, global container freight costs hit their lowest in over sixteen months and are down over 63% from August 2024 highs of more than $5,500 per forty-foot-equivalent unit.

Traffic Through Major Maritime Chokepoints:

• Traffic through the Panama Canal recovered to within 10% of pre-drought seasonal norms last month, with April’s total vessel count up 27.6% Y/Y.

• This week’s agreement between the U.S. and Yemen’s Houthis indicates shipping firms will soon resume transits through the East-West shortcut, incrementally reducing freight costs and lead times as vessels cut ton-mileage from the circuitous Cape of Good Hope detour.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation with respect to the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is exclusively intended for Mobius clients and is not considered promotional material.