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In Issue 338 of the Sunday Spotlight, SeaIntel Maritime Analysis looked at the historical impact of capacity utilisation on freight rates in Asia-Europe and Transpacific Eastbound trades.
The recently-ended 2017 peak season saw Transpacific freight rates seriously underperform expectations, despite carriers reporting healthy demand growth and full vessels. The utilisation data in SeaIntel’s analysis, however, challenges that narrative, and provides for a sound justification for why freight rates were low despite healthy Y/Y demand growth of more than 10%: vessels were simply not full. 2017 utilisation on the Transpacific has only breached 90% in September 2017, and only marginally so, and with healthy demand growth the only logical explanation is excess capacity.
This tallies quite well with the analysis over the past several weeks where SeaIntel has found 2017 Q/Q capacity levels to significantly surpass that over previous years, primarily as carriers have almost abandoned the use of blank sailings as a tool to manage capacity. This also provides support for the concerns SeaIntel has raised in recent weeks of excess capacity for 2017-Q4, where the Q/Q capacity growth far exceeds the average of the past five years.
While the relationship between nominal utilisation and SCFI spot rates is not as pronounced in the Asia-Europe trade as in the Transpacific trade, one still sees a quite 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. Unsurprisingly, spot rates started falling immediately after, dropping to an average of $783/TEU in September.
SeaIntel CEO Mr 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, as also highlighted in our analyses of the past month.”
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