Shipping rates could plummet after ceasefire between US and Yemeni Houthi rebels
After the ceasefire between the US and Yemeni Houthi rebels was announced, a large number of container ships will return to the Red Sea, which will lead to overcapacity in the market and cause global freight rates to plummet, but the specific situation is still unclear.
Data released by Xeneta, a maritime and air freight intelligence platform, shows that if container ships resume crossing the Red Sea and the Suez Canal instead of detouring around the Cape of Good Hope, global TEU-mile demand will fall by 6%.
Factors affecting TEU-mile demand include the distance each 20-foot equivalent container (TEU) is transported around the world and the number of containers transported. The 6% forecast is based on a 1% increase in global container shipping demand for the whole year of 2025 and a large number of container ships returning to the Red Sea in the second half of the year.
“Of all the geopolitical upheavals that could affect ocean container shipping in 2025, the impact of the Red Sea conflict will be the longest lasting, so any significant return will have a huge impact,” said Peter Sand, chief analyst at Xeneta. “Container ships returning to the Red Sea will overload the market with capacity, and a freight rate crash is the inevitable result. If US imports also continue to slow due to tariffs, the freight rate crash will be even more severe and more dramatic.”
The average spot price from the Far East to North Europe and the Mediterranean is $2,100/FEU (40-foot container) and $3,125/FEU, respectively. This is an increase of 39% and 68% respectively compared to the levels before the Red Sea crisis on December 1, 2023.
The spot price from the Far East to the East Coast and West Coast of the United States is $3,715/FEU and $2,620/FEU, respectively. This is an increase of 49% and 59% respectively compared to the levels before the Red Sea crisis.
While Sand believes spot freight rates could fall back to pre-Red Sea crisis levels, he warns that the situation remains fluid and the complexities involved in returning container ships to the Suez Canal need to be properly understood. “Airlines need to ensure the long-term safety of their crews and ships, not to mention the safety of their customers’ cargo. Perhaps more importantly, so should insurers.”
This article is for reference only and does not constitute investment advice.
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