The maritime analyst SeaIntel has cautioned industry observers to refrain from uncoupling falling ocean freight rates and the dropping price of fuel.
In its Sunday Spotlight
report, SeaIntel wrote that a large proportion of falling rates shown by recent indices of key headhaul lanes comes from the fact that bunker prices have dropped in recent weeks, with most bunker adjustment factors calculated on a lag behind real-time prices.
“The conclusion is that part of the recent rate decline is purely a reflection of lower oil prices, and not of the overall market health,” SeaIntel said. “The challenge for the carriers is the fact that these declines only reflect the oil price changes, and neither reflects the supply/demand balance nor the rate discipline amongst the carriers. Hence any market observer and analyst must take this fact into account in order to avoid interpreting a reduced BAF component as an indication of market weakness.
“Overall, bunker prices have declined by $150 per ton in the past couple of months. As the carriers’ BAF formulas are based on past bunker price developments, it means that the effect is only now beginning to impact the overall freight rate levels.”
In the Asia-Europe trade, the decline in oil prices will result in freight rates declining by $165 per TEU across June, July and August compared to the peak levels in May, SeaIntel said.
“In July we have seen rates decline for the past three weeks, however 26 percent of the decline is purely due to declining BAF and is hence not a reflection of supply/demand fundamentals, nor of carriers’ rate discipline,” the report said. “Going from July into August, we expect a further rate decline of $90 per TEU due to declining BAF levels – possibly to be offset by the newly announced rate increases.”
In the eastbound transpacific trade, the BAF formula is only adjusted quarterly, so a sharp decline in oil prices will only be reflected in the BAF in the fourth quarter of this year.
“Should the present oil price levels prevail, then the transpacific BAF will decline by $84 per FEU in Q4,” SeaIntel said.