Recent data from Xeneta, an ocean and air freight intelligence platform, suggests that the potential return of container ships to the Red Sea following the US-Houthi ceasefire announcement could lead to a significant drop in global freight rates. The findings indicate that global TEU-mile demand may decrease by 6% if shipping routes through the Red Sea and Suez Canal resume, rather than requiring ships to divert around the Cape of Good Hope. TEU-mile demand measures both the distance that each 20-foot equivalent unit (TEU) is transported globally and the total number of units. The projected 6% decrease is based on an anticipated growth rate of 1% in global container shipping demand for the full year of 2025 alongside the large-scale return of vessels to the Red Sea in the latter half of the year.
Peter Sand, Chief Analyst at Xeneta, emphasized that geopolitical conflicts in the Red Sea significantly impact ocean container shipping, with any increase in shipping activity likely to result in a substantial market oversupply and plummeting freight rates. Average spot rates from the Far East to North Europe and the Mediterranean currently stand at USD 2,100 and USD 3,125 per FEU, respectively, marking increases of 39% and 68% since the onset of the Red Sea Crisis. Similarly, spot rates from the Far East to the US East and West Coast are at USD 3,715 and USD 2,620 per FEU, reflecting increases of 49% and 59%. Sand also commented on the challenges carriers face regarding capacity management.
He noted that the anticipated influx of capacity, alongside reduced global demand due to existing tariffs, could necessitate a reevaluation of capacity strategies to avoid further freight rate declines. Despite the hopes raised by the ceasefire plan announced in February between Israel and Hamas, Sand warned that the situation remains precarious. No increase in transits through the Bab el-Mandeb Strait or Suez Canal is projected for 2025. Insurance companies require solid assurances regarding the safety of ships and cargo, and heightened risks from Houthi attacks complicate the matter.
Thus, the chaos caused by diversions around the Cape of Good Hope in early 2024 makes carriers wary of reinstating Suez Canal schedules only for conditions to regress, forcing them back to prior routes.