Europe: There are indications that global freight volumes may have reached their lowest point in the first quarter, suggesting that the industrial cycle could be nearing its trough. This bodes well for oil prices later in 2023. Global freight volumes declined by 1.1% in Q1 of 2023 compared to the previous year. However, there was a slight increase of 0.2% in March as opposed to the same month in the prior year. This followed declines of 2.5% in February and 1.2% in January. These trends suggest that we may have reached the cyclical trough.

In April, Singapore's maritime container throughput hit an all-time high of 3.26 million twenty-foot equivalent units (TEUs), which is a 7% increase over the same period last year. Meanwhile, London's Heathrow airport experienced a 7% decline in cargo between February and April compared to the previous year. Although this is still a decrease, it represents a significant improvement from the 14% decline observed between October and December. Similarly, at Narita in Japan, air freight decreased by 22% between January and March, which is a smaller decline compared to the 26% drop between November and January.

Unlike other parts of the world, it is unclear whether the manufacturing and freight cycle in the United States has reached its trough due to the country's size and centrality in the global economy. U.S. railroads transported 3.1 million shipping containers in Q1 of 2023 as opposed to 3.4 million during the same period in 2022. American trucking companies reported a decline of less than 1% in activity levels during the first quarter of 2023. However, there was a noticeable weakening towards the end of the quarter with activity levels falling by 5% in March.

Compared to the previous year, there was a 16% decrease in the number of containers handled in April and a 17% decrease during the first four months of 2023. However, the cost of containerized ocean shipping has remained stable since mid-March due to a steadier demand. This represents a significant change from the declining trend observed for almost the entire year.

Over the past year, the global freight industry has been adversely affected due to excess inventories held across the supply chain. This is because consumer and business spending shifted from merchandise to services following the pandemic. Furthermore, persistent inflation, rising interest rates, and fears of a recession have led households and firms to adopt a more cautious approach towards spending. Despite this, the latest data from a few transport hubs suggests that the freight volumes may have stabilized or even improved towards the end of Q1 and at the start of Q2.

If there is a trough in manufacturing and freight activity, it could help stabilize the consumption of Diesel and other distillate fuel oils across major economies, ultimately providing some support to oil prices. The decrease in Crude oil, gas, and electricity prices since mid-2022 may alleviate some pressure on consumer spending power and business investment, which will likely support a gradual recovery. However, the rebound in China after the coronavirus pandemic has been more muted than anticipated at the start of 2023, which has reduced the momentum of the global economy.

Business inventories continue to remain high across North America and Europe, and the effects of interest rate hikes, tighter credit conditions, and rising unemployment are yet to be fully felt. As a result, households and firms will feel the squeeze for at least the next six months. If there is to be a positive change in freight markets, inflation needs to subside soon to prevent the pressure for much higher interest rates and another downward spiral in industrial demand.