Ocean freight prices for container shipments to the U.S. fall for the first time since April 2020

WASHINGTON, D.C. – September 28, 2022 – Engineering and construction costs increased again in September, according to IHS Markit, now a part of S&P Global, and The Procurement Executives Group (PEG). The headline IHS Markit PEG Engineering and Construction Cost Index, a leading indicator measuring wage and material inflation for the engineering, procurement and construction sector, fell to an index level of 63.9 this month from 68.6 in August; September’s reading is still well above the breakeven 50 mark, indicating rising prices. The subcontractor labor index rose 0.1 index point in September to 85.3 from 85.2 in August, while the sub-index for materials and equipment costs fell 6.8 index points to 54.7.

The equipment and material index rose for the 22^nd consecutive month. Among the 12 indicators, prices for five fell and seven increased. Most notably, the sub-indexes for both ocean freight indicators recorded steep declines in pricing pressure this month with ocean freight – Asia to U.S. and ocean freight – Europe to U.S. both falling to 40.0. The shifting sentiment in current ocean freight prices comes after 28 months of growth. Carbon steel pipe prices continued to fall with the index registering a value of 36.4 in September. Copper-based wire and cable rose to 59.1 from 50.0 last month.

“Over the last two years, transpacific eastbound container rates have varied greatly between the spot and contract markets,” said Tal Dickstein, Senior Economist, Pricing and Purchasing, S&P Global Market Intelligence. “Only recently have both indicators been moving down in concert, owing to downward pricing pressure from the spot market. This recent trajectory shift is in a fragile state and may reverse, due to the heightened risk of labor strikes facing the U.S. broadly and the U.S. West Coast particularly.”

The sub-index for current subcontractor labor costs came in at 85.3 in September, up from August’s 85.2. According to survey responses, labor costs continued to rise in all regions of the United States and Canada.

The six-month headline expectations for future construction costs index also rose, recording an index reading of 76.3 in September. The six-month expectations index for materials and equipment came in at 69.4, 16.1 index points higher than last month’s figure, showing signs that more organizations are expecting price hikes ahead. Additionally, ocean freight – Asia to U.S. and ocean freight – Europe to U.S. saw slight growth in their respective six-month expectations to 55.0 each. The six-month expectations index for sub-contractor labor increased 8.4 index points this month to 92.2. Steel-related commodities were flat to down in the six-month expectations index, while every other index reported expectations for rising prices, with machinery prices registering the highest index figures. Although labor costs remained relatively stable last month, cost increases will become more widespread by year’s end in all regions of the United States and Canada.

Respondents continued to report material shortages in September, particularly for electrical equipment, fabricators, and concrete.

To learn more about the IHS Markit PEG Engineering and Construction Cost Index or to obtain the latest published insight, please click here.

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