Shipping prices, import price inflation, and the COVID-19 pandemic

Just as everyone observed COVID-19’s effects on other economic statistics, they also noticed the large price increases that occurred during and following the pandemic (2021). Prices of imports into the United States rose especially steeply over this period, increasing at rates not seen in decades, while the cost of international shipping by sea rose to levels almost 7 times higher than they had been before the start of the pandemic. These price increases were accompanied by delivery delays and congestion at ports the world over. Manufacturers and wholesalers reported shortages of parts and materials, and the term “supply chain” entered the lexicon of ordinary citizens. Many wondered, what effects do shipping costs have on import price inflation rates?

In “Shipping prices and import price inflation” (Federal Reserve Bank of St. Louis Review, second quarter 2023), authors Maggie Isaacson and Hannah Rubinton examine the relationship between shipping costs and import price inflation during the pandemic, specifically the extent to which increases in shipping costs were responsible for the rise in U.S. import price inflation. They use data from various sources, including import price data from the U.S. Bureau of Labor Statistics, to construct measures of the pass-through of shipping costs to import prices for different commodities at various times.

Isaacson and Rubinton find that modest, some might say small, amounts of shipping costs are passed through to import prices. They estimate approximately a 0.07-percentage-point increase in import price inflation for each 1.0-percent increase in shipping costs. However, because of the extreme rise in shipping costs during the pandemic, shipping costs accounted for between roughly 3.6 and 5.9 percentage points of the increase in import price inflation each year.

The amount of the pass-through varied among different types of commodities. More of the shipping costs were passed through to the purchaser for products more likely to be transported by sea and for those products that have a higher ratio of shipping costs to the price of the good (that is, relatively low-cost goods with high shipping costs). They also find more pass-through in imports of foods, machines, electronics, and parts. They suggest that perishable and intermediate goods are more likely to have higher pass-through values compared with final goods and consumer goods.

In addition, the authors find that in 2021, the pass-through was larger than in the period from 2010 to 2019, again with differing pass-through amounts for different types of goods. The authors also note that other factors, such as demand shocks, fiscal stimulus, and other supply shocks also affect the extreme rise in domestic prices. Thus, they conclude that the extreme increases in import prices observed during the pandemic can be partially, but not entirely, be attributed to the increased shipping costs during that time.