Sea Freight Spot Rates Continue Decline on Back of Lower Utilisation

Sea Freight Spot Rates Continue Decline on Back of Lower Utilisation

Lower utilisation combined with recently added cargo capacity put pressure on rates

The development of nominal vessel utilization is a key parameter in gauging the strength of the sea cargo market, according to Sea Intelligence.

Even though demand grew by 0.6% Y/Y 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.

However, while demand growth is slowing, capacity growth is increasing at the same time. For Transpacific, the drop in vessel utilization is shown in figure 1. The sharp drop in May was sustained in June as well, with vessel utilization around the 89% mark.

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Once utilisation gets into the 90-95% range for the Transpacific, it effectively means all capacity is fully utilised and spot rates increase dramatically.

However, now that we have had 2 consecutive months where utilisation is below 90%, it is clear the market is no longer at a point which can sustain the extremely high spot rates. Similar is case on Asia-Europe and Transatlantic routes as well.

The bottom line is that the average vessel utilisation on the major head-haul trades continues to be below the threshold which fuelled the record rate peaks over the past 1½ years. As a consequence, spot rates will continue to decline.

Read More: Long-term Shipping Rates Finally Peak, But Still Up 112% Y-o-Y: Xeneta

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Transport and Logistics ME