Analysts have recently reported a continuing trend of LNG freight rates plunging to record lows. LNG (Liquified Natural Gas) rates for Atlantic and Pacific basins fell $20,750 and $36,000 daily on Friday, October 25th. For reference, this is the lowest for this period, with rates down 87% in the Atlantic and 78% in the Pacific since 2019. LNG pricing agencies have noted that rates for LNG tankers may remain low until late 2025. Spot prices for the UP World LNG Shipping Index (UPI) fell 3.54% last week. What is causing the sharp decline in rates, and how could this affect international shipping?
Why Are LNG Freight Rates Plunging To Record Lows?
The recent plunge in freight rates is due to the number of new tankers entering the market. By early October, there were 45 newbuild tanker deliveries, with more arriving in the next few months. Approximately 70 new LNG carriers will enter the global fleet of 800 by the end of this year. An LNG pricing agency noted, “We don’t see this pace of additions slowing significantly until mid-2026.” The issue is that manufacturers are producing tankers at a quicker rate than LNG production. As the amount of shipping capacity continues to rise, demand for LNG exports remains stagnant. Milder weather conditions worldwide also contribute to the weaker demand as winter approaches.
LNG production has been growing slowly due to a labor and equipment shortage, causing delays. In 2022, LNG supplies from Russia plunged from a conflict with Ukraine. With Russia being one of the largest producers and shippers of natural gas globally, the market felt the impact. As a result, shippers began looking at other countries like the U.S. for LNG exports. In anticipation of the rise in exports, manufacturers began building tankers rapidly, more than the demand to ship internationally. Instead of an increase in international shipping, customers began sourcing LNG locally, lowering freight rates. Traders also have no incentive to store LNG on vessels, which helps lower tankers on the market.
What Can This Mean For International Trade?
When LNG rates decline, it can significantly impact international trade, including the global energy market. For importers, this can lead to greater savings and make LNG more attractive than other fuels. As a result, price-sensitive markets like Southeast Asia could see a growing demand for this fuel. While lower LNG rates can benefit buyers, producers may feel low profit margins from plunging rates. Ship owners will also feel the impact of lower profits. To compensate, they may delay fleet expansions and invest in LNG infrastructure. Based on market conditions, producers could shift export destinations to high-paying markets or sell more at more competitive prices.
While the LNG market may be cyclical, keeping current with any situation affecting shipping is essential. Along with natural gas, this can include any cargo, and shippers can do this by speaking to a freight forwarder. Forwarders act as the middlemen between the shipper and carrier and coordinate the cargo’s movement. They also give shippers an idea of what to expect during the shipment’s journey and offer other solutions. Contact A1 Worldwide Logistics at 305-440-5156 or info@a1wwl.com for shipping to and from the U.S. Whether you need to ship LNG or any other cargo internationally, our forwarders can guide you through the process.
