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North American Freight Markets Show Signs of Picking Up in Second Half

A new wave of data shows that North American freight markets are still contending with reduced volumes and demand relative to pandemic heydays, but signs are emerging of an improvement heading into the second half of the year.

Total freight spending in the region fell for a fifth straight month in April from a month earlier to the lowest since September 2021, a seasonally adjusted expenditure index compiled by Cass Information Systems showed.

Declining retail-sales trends and ongoing destocking of inventories “remain the primary headwinds for freight volumes,” but dynamics are shifting as real incomes are improving and “the rest of the destock is most likely in the rear view,” said Tim Denoyer, senior analyst at ACT Research.

Cass uses data on all domestic freight modes derived from 36 million invoices and $44 billion in spending processed by the company annually on behalf of its client base of hundreds of large shippers.

After a long soft patch, Denoyer said the US freight-transportation industry “on the verge of a new cycle as we begin to transition from the bottom phase into the early phase of the freight cycle in the months to come.”

Bloomberg Intelligence senior logistics analyst Lee Klaskow also sees a silver lining: The decline in the Cass gauge is moderating and demand improved into May, which could mean seasonal strength is returning to the market.

“That may set up a better freight environment in the second half as retailers work through inventory,” Klaskow said in a research note on the Bloomberg Terminal.

Backing up the case for a rebound was a New York Fed factory report, which showed the outlook for general business conditions six months ahead rose on expectations for stronger orders. That was overshadowed by the readings on current conditions, which slumped by the most in more than three years.

Spare Capacity

Separate data out from GEP showed global demand for logistics being subdued, with previously stretched supply chains having spare capacity for the first time since June 2020.

GEP’s global supply-chain volatility index — which tracks demand conditions, shortages, transportation costs, inventories and backlogs — fell to -0.4 in April, the first negative reading since mid-2020.

In North America, demand trends are improving despite the interest in borrowing costs. More broadly, shortages have eased for metals and chemicals, even though “poor availability is still ongoing for semiconductors and electrical items,” GEP’s report showed.

“After months of companies aggressively destocking, there is now excess capacity in the world’s supply chains, providing buyers with greater leverage to extract favorable prices and terms for the second half of 2023 and into 2024,” said Volker Roelofsen, the vice president of supply-chain consulting at GEP.

“The good news is that companies’ demand for components and raw materials, while subdued, is holding steady, indicating that central banks are, at least for now, successfully engineering a measured slowdown,” Roelofsen said.

Ana Monteiro in Washington

Charted Territory

World's Fleet of Gas Ships Expands Rapidly LNG carriers will outnumber the biggest crude vessels by 2027 Source: Clarksons Research Note: LNG ship fleet excludes smaller bunkering vessels for gas

Liquefied natural gas ships are forecast to outnumber the biggest tankers used to carry crude oil by 2027. There were 625 LNG ships versus 849 Very Large Crude Carriers — or VLCCs — last year, but this will grow to 907 and 903 respectively, according to Clarksons Research. The investment shift suggests owners are less optimistic about crude demand as they gear up for the world’s transition to less pollutive fuels. Freight rates for oil tankers, however, could stay elevated if the construction of LNG ships are delayed. A fire at South Korea’s Hankuk Carbon in April is already disrupting the production of insulation tanks used to build vessels.

Today’s Must Reads

  • China’s consumer spending and industrial activity grew at a slower pace than expected in April, adding to signs the recovery in the world’s second-largest economy is losing momentum. Meanwhile, G7 countries are working on ways to cooperate against economic coercion from China.

  • Emmanuel Macron sought to persuade Elon Musk on Monday that France is a leading hub for foreign investments and electric cars as he tries to attract global businesses. Meanwhile, senior Tesla executives plan to visit India this week.

  • Alcoa, the largest US aluminum producer, agreed to an eight-year contract to supply Emirates Global Aluminium with as much as 15.6 million metric tons of alumina, the key ingredient needed to make the lightweight metal.

  • Petroleos Mexicanos is in advanced talks to buy KKR’s Monterra Energy fuel-storage terminal in Tuxpan, Veracruz, in one of the latest blows to Mexican energy liberalization that ushered in a wave of foreign investment.

  • The UK’s antitrust regulator will investigate the cost of groceries during against a backdrop of double-digit inflation and soaring food prices. Meanwhile, a virus that has ravaged poultry flocks in the US and Europe has just hit Brazil, the world’s largest chicken exporter.

  • Russian crude oil flows to international markets continue to rise, even as the country insists it is slashing production.

On the Bloomberg Terminal

  • Unlike the majority of freight modes, supply-demand dynamics for crude tankers should support strong rates and provide a boost to Euronav’s earnings in 2023, Bloomberg Intelligence says.

  • Bloomberg Economics expects the deflationary path in US import prices to continue due to base effects, but the impact of these prices on PCE inflation is minimal, its nowcast model shows.

  • Run SPLC after an equity ticker on Bloomberg to show critical data about a company's suppliers, customers and peers.

  • Use the AHOY function to track global commodities trade flows.

  • Click HERE for automated stories about supply chains.

  • On the Bloomberg Terminal, type NH FWV for FreightWaves content.

  • See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.

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