- Red Sea Transit Seen as Key Market Turning Point.
- Initial Port Congestion Likely Before Rate Pressure Builds.
- Liners Expected to Move Cautiously on Resumption.
A gradual return to the Red Sea route after a long detour around the Cape of Good Hope, and this is shaping up to be the key development to keep an eye on in container shipping for the upcoming year. This shift seems more about timing than feasibility, as the first major carrier to make the move is likely to set off a chain reaction across the industry. The Suez Canal continues to be a vital lifeline for East–West trade, handling over 15% of global goods trade and an even larger portion of global container traffic, especially when it comes to consumer goods, reports ING.
Prolonged Avoidance Reshaped the Market
For nearly two years, container vessels have largely steered clear of the Red Sea due to Houthi attacks that kicked off in late 2023. This disruption lasted longer than anyone anticipated and significantly contributed to the rise in container rates and liner profitability after the sharp downturn we saw in 2023.
Taking the detour around the Cape adds more than 3,000 nautical miles and about 10 days to voyages from Asia to Northwest Europe. Right now, this diversion is using up around 6% of the global fleet capacity, which only amplifies delays and tightens supply.
Capacity Release Will Drive Market Pressure
If we see a return to Red Sea transits, it would quickly free up capacity in the market. While we can expect improvements in fuel efficiency and lower emissions down the line, the initial phase is likely to bring some disruption.
Early arrivals of vessels could lead to congestion at European ports, causing ripple effects and delays throughout supply chains. Although carriers might resort to blank sailings to help manage the transition, we could see a temporary spike in freight rates, especially if this shift coincides with the Chinese New Year period.
Downward Rate Pressure on the Horizon
Once schedules settle down, we can expect to see some significant downward pressure on rates. As new vessels from the large orderbook start hitting the waters in 2026, additional capacity will come into play. However, container volume growth is projected to stay pretty flat, which will likely put more strain on earnings.
While slow steaming and the quicker scrapping of older ships might help manage some of the excess capacity, these strategies probably won’t completely balance out the supply issues in the short term.
Liners Expected to Tread Carefully
Even though companies like Maersk, Hapag-Lloyd, and CMA CGM have hinted that Red Sea transits could get back on track when the time is right, liner companies aren’t rushing into anything. Schedules based out of the Cape have stabilised, reliability has improved, and carriers are eager to avoid any new disruptions that could come from changing routes too soon.
Factors like insurance costs, security guarantees, and alliance commitments, along with the high reliability targets set under new network structures, are all crucial considerations. Initial testing is anticipated on backhaul voyages to Asia, where cargo exposure and reliability demands are less intense. Overall, timing the return to the Red Sea is viewed as a top priority for container liners, both operationally and financially.
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Source: ING
