(John Kemp is a Reuters market analyst. The views expressed are his own)
* Chartbook: tmsnrt.rs/2DB9aLY
By John Kemp
LONDON, Jan 26 (Reuters) - Freight movements in the United States and around the rest of the world are growing at some of the fastest rates this decade, which should provide a big boost for diesel consumption in 2018.
In the United States, the volume of freight moved by road, rail, pipeline, barge and air between September and November was around 6 percent higher than in the same period a year earlier.
Freight volumes are growing at some of the fastest rates since 2011, according to the freight transportation services index compiled by the U.S. Bureau of Transportation Statistics (tmsnrt.rs/2DB9aLY).
Freight movements are being driven by an increase in coal deliveries to power plants, as well as increases in oil and gas drilling.
U.S. businesses have also finally managed to get their inventories of raw materials, unfinished work-in-progress and finished items under control.
The ratio of inventories to sales has fallen to 1.33, down from a peak of 1.46 in April 2016, and the lowest for three years, according to the U.S. Census Bureau.
The continued draw down in inventories is unsustainable and has left manufacturers, distributors and retailers boosting new orders to stop the erosion of their stock levels.
One result is a nationwide shortage of trucks and a scramble by shippers to secure enough freight capacity (“A shortage of trucks is forcing companies to cut shipments or pay up”, Wall Street Journal, Jan. 25).
Freight rates and shipment backlogs have been rising sharply as spare capacity inherited from the slowdown in cargo movements in 2015 and 2016 is used up.
The pattern is being repeated worldwide, with global trade growing at the fastest rate since 2011, according to the Netherlands Bureau of Economic Policy Analysis (“World Trade Monitor”, CPB, Jan. 2018).
The global economy is experiencing the strongest synchronised growth since the start of the decade with all the advanced economies in a cyclical upswing.
The rise in oil and other raw materials prices is also starting to produce an upswing in the commodity-dependent developing countries that were hit hardest when commodities prices started tumbling in 2014.
The current global expansion is expected to continue throughout 2018 and into 2019 which should support further rapid growth in freight volumes.
Since almost all freight is moved by trucks, railroads, barges, ships and aircraft that use diesel or jet fuel made from middle distillates, the economic expansion should provide a big boost for distillate demand in 2018.
Distillate consumption tends to be correlated with freight and industrial production so it was hit badly by the slowdown in 2015 and 2016.
But distillates are set to be the big beneficiary of the current global upturn, with diesel and jet taking over from gasoline as the fastest-growing source of fuel consumption in 2017 and 2018.
“Booming oil demand is eroding inventories”, Reuters, Nov. 2
“Global trade upturn aids oil market rebalancing”, Reuters, Sept. 27
“Global trade recovery lifts diesel demand”, Reuters, Aug. 2
“U.S. freight recovery spurs diesel demand”, Reuters, May 25 (Editing by Edmund Blair)