In the first article of issue 577 of the Sunday Spotlight, Sea-Intelligence looked at the development of nominal vessel utilization, as this is a key parameter in gauging the strength of the market.
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.
On the major East/West trades, while demand growth is slowing, capacity growth is increasing at the same time. The sharp drop in May was sustained in June as well, with vessel utilization around the 89% mark.
Basically, once utilisation gets into the 90-95% range for the Transpacific, it effectively means all capacity is fully utilised and spot rates increase dramatically. It is clear the market is no longer at a point which can sustain the extremely high spot rates.
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.
