Global freight volumes show hints of reaching their lowest levels in Q1 2023, suggesting the industrial cycle may be approaching its nadir. This development provides possible support to oil prices later in 2023.
A Glimpse of Improvement
The Netherlands Bureau of Economic Policy Analysis reports a 1.1% decline in global freight volumes during the first three months of 2023 compared to the previous year. However, volumes saw a 0.2% increase in March compared to the prior year, following declines in January and February. These developments indicate that the cyclical trough may have been reached.
Singapore observed a record-high maritime container throughput of 3.26 million twenty-foot equivalent units in April, 7% higher than the previous year. Meanwhile, London’s Heathrow Airport saw a 7% decline in cargo between February and April, a less severe drop than the 14% experienced between October and December. Narita Airport in Japan witnessed a 22% decline in air freight in the first quarter, a minor improvement from the 26% decrease from November through January.
Uncertainty in the US
The US has yet to show significant recovery in manufacturing and freight activities. US railroads hauled 3.1 million shipping containers in Q1 2023, a reduction from 3.4 million in the same period in 2022. The nine most prominent US container ports reported a 16% decline in shipping containers handled in April and a 17% drop for the first four months of the year compared to the previous year.
Stabilizing Prices
The Freightos Baltic Exchange global container index reveals that containerized ocean shipping costs have stabilized since mid-March after a continuous decline over the past year. This price stabilization reflects steadier demand in the industry.
Factors Influencing the Trough
Dwindling global freight volumes have been attributed to excess inventories along the supply chain as post-pandemic patterns shift consumer and business spending from merchandise to services. Pervasive inflation, rising interest rates, and heightened recession fears also restrain households and businesses’ spending habits.
Although limited to specific transport hubs, recent data indicates that freight volumes may have stabilized or improved by the end of the first quarter and into the second quarter. This activity trough could help stabilize diesel and distillate fuel oil consumption across significant economies, potentially boosting oil prices.
Other factors, such as lower prices for crude, gas, and electricity compared to mid-2022, could alleviate pressure on consumer spending power and business investments, promoting a gradual recovery.
Challenges to Overcome
A muted recovery in China following the pandemic has hampered global economic momentum. Business inventories remain high in North America and Europe, with interest rate hikes, tighter credit conditions, and increasing unemployment continuing to impact households and businesses for at least the next six months.
To mark a real turning point for freight markets, inflation must subside soon to prevent the need for even higher interest rates and additional downward pressure on industrial demand.
