Red Sea Restart: Signaling Lower Rates for Asia-US Shippers

Port of Los Angeles (Photo: Port of Los Angeles / Phaata)

Major carriers, after two years of facing conflict and violence that altered regional transport structures and global supply chains, have begun reopening services on this vital Middle East route. This move promises lower freight rates for shippers moving goods from Asia to the United States.

Thursday’s announcement by Maersk (MAERSK–B.CO) regarding the restart of services routed via the Red Sea and Suez Canal is a welcome signal of normalization amidst years of political volatility and violence in the region.

Maersk’s restructuring of the MECL service connecting Asia and the US is viewed as a prudent approach that will likely be emulated by other container lines. As significant capacity is injected back into an already uneven environment, this could further drag down ocean freight rates that are already on a weakening trajectory.

Previously, another major carrier, France's CMA CGM, had largely maintained scheduled services throughout the period of Houthi attacks.

Turning Point from the "Cautious Giant"

Commenting on this move, Peter Sand, Chief Analyst at Xeneta, stated: “Maersk has generally been the most risk averse out of the major carriers regarding a return to the Red Sea, so this is a turning point. The services announced by Maersk as returning to the Suez Canal are smaller ships operating outside an alliance, but the fact it is Maersk making this move is highly significant.”

Over the past week, Maersk revealed it had operated at least two vessels in the Red Sea region. Sand implied that the carrier had switched off satellite tracking devices (AIS) to conceal the exact location of the ships - similar to the tactics of the "dark fleet" often carrying sanctioned goods.

Sand further analyzed: “Xeneta data has shown Maersk testing the water in recent weeks with ships scheduled to sail around the Cape of Good Hope ‘going dark’ and instead sailing through the Red Sea. Clearly these sailings were deemed successful and the risk now low enough to announce services through the region on official schedules.”

Recovery Path and Risk of Short-Term Congestion

Although Maersk has reopened the door to the Suez route, Sand suggests it is unlikely other carriers will rush back immediately en masse.

“This does not mean an immediate large-scale return of container shipping to the Red Sea region. Depending on how quickly carriers want to move, it could take three to five months for schedules via the Suez Canal to be fully reinstated. We could also see significant disruption and port congestion during that time as services adjust to new routes and transit times.”

Pressure on Rates and Contract Negotiations

The timing of this return is pivotal and comes with a host of factors certain to pressure ongoing contract negotiations between carriers and shippers. Diverting ships on longer voyages around the Cape of Good Hope had previously helped remove a large amount of excess capacity from the global market.

Sand commented on the economic impact: “A large-scale return to shorter sailing distances via the Suez Canal would effectively free up 6-8% of global container shipping capacity. The implications of this are clear for both carriers and shippers, with overcapacity placing significant downward pressure on freight rates.”

With global container volume reaching 183 million TEU in 2024, this implies that nearly 2 million TEU of capacity would return to circulation.

Regarding the current rate picture, Sand concluded: “Average spot rates from the Far East are down 43% into the U.S. East Coast and 30% into North Europe compared to a year ago, while long term rates are expected to fall back to pre-Red Sea crisis levels in December 2023 even without a large-scale return to Red Sea.”

See more:

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Source: Phaata.com (According to Freight Waves)

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