Freight rate decline attributed to BAF cuts, not supply and demand
 
THE recent decrease in freight rates has been prompted by the reduction in fuel surcharges rather than a supply and demand imbalance, according to Copenhagen-based consultancy SeaIntel Maritime Analysis.
 
On average, bunker prices have fallen over the last couple of months by US$150 per tonne, it said, and since the carriers' bunker adjustment factor (BAF) is based on past bunker price developments, it means that the effect is 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 US$165 per TEU in total across the months of June, July and August compared to the peak levels in May. In July we have seen rates decline for the past three weeks, however, 26 per cent of the decline is purely due to declining BAF and is hence not a reflection of supply/demand fundamentals or of carriers' rate discipline. 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," said the report.

London's Containerisation International reported that in the transpacific eastbound trade, the BAF is only adjusted quarterly, hence the sharp decline in oil prices will only be reflected in the BAF in the fourth quarter. Should the present oil prices levels prevail, then the transpacific BAF will decline by $84 per FEU in the fourth quarter.

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