Low vessel utilisation the cause of slipping freight rates
Container line claims that vessels were full during the recently concluded peak season were wide of the mark, according to SeaIntel, which predicts “a rather challenging freight rate environment” in the fourth quarter.
Analysing the historical impact of capacity utilisation on freight rates in Asia-Europe and Transpacific Eastbound trades in its latest Sunday Spotlight report, the analyst said the slump in freight rates seen in recent months was easy to explain, despite carriers reporting full vessels and healthy demand growth of 10%, year on year.
“Vessels were simply not full,” said the report. “2017 utilisation on the Transpacific only breached 90% in September 2017, and only marginally so, and with healthy demand growth the only logical explanation is excess capacity.”
SeaIntel said this tallied with its recent analysis, which found that 2017 quarter-on-quarter capacity levels significantly surpassed that of previous years, primarily as carriers almost abandoned the use of blank sailings as a tool to manage capacity. “This also provides support for the concerns we have raised in recent weeks of excess capacity for Q4 (fourth quarter) 2017, where the quarter-on-quarter capacity growth far exceeds the average of the past five years,” said the report.
While the relationship between nominal utilisation and SCFI spot rates was not as pronounced on the Asia-Europe trade as in the transpacific trade, SeaIntel said there was still a strong link, with utilisation levels driving spot rate levels.
“Data further supports the challenges carriers have faced in raising freight rates in the 2017 peak season, as utilisation levels hovered around 83% in April-July 2017, but tumbled to 75% over the next two months,” said the report. “Unsurprisingly, [Asia-Europe] spot rates started falling immediately after, dropping to an average of US$783 per teu in September.”
SeaIntel CEO Alan Murphy added: “With volumes bound to drop in the fourth quarter relative to Q3, and capacity levels remaining high due to low levels of blank sailings, carriers are looking at a rather challenging freight rate environment in the fourth quarter.”