Freight rates likely to decline on lower vessel utilization: Sea Intelligence

Ocean shipping analyst Sea-Intelligence after witnessing vessel utilization rates decline awaits the decline of freight rates. 

Sea-Intelligence CEO Alan Murphy said even though demand grew by 0.6% year-on-year in June, it doesn’t change the fact that it has been on a downwards trend ever since it spiked in peak season 2020.

“The more pertinent question, therefore, is how demand growth matches up against deployed capacity. A declining demand trend can be offset by a declining injection of capacity, especially in an environment where port congestion leads to significant vessel delays, and in turn results in capacity removal,” he said.

“When we look at capacity deployment on the major East/West trades, we can see that while demand growth is slowing, capacity growth is increasing at the same time. For trans-Pacific, the drop in vessel utilization is shown [in the chart]. The sharp drop in May was sustained in June as well, with vessel utilization around the 89% mark.”

He points out the correlation between vessel utilization and spot rates on the trans-Pacific and says, “Basically, once utilization gets into the 90-95% range for the trans-Pacific, it effectively means all capacity is fully utilized and spot rates increase dramatically.” 

Adding he mentions, that the two consecutive months where utilization is below 90% indicates that the market is no longer at a point that can sustain the extremely high spot rates. He mentions seeing a similar case in Asia-Europe and trans-Atlantic as well.

Concluding he highlights that as average vessel utilization on the major head-haul trades continues to be below the threshold, fuelling the record rate peaks over the past year and a half, spot rates will continue to decline as a consequence. 

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