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Geopolitical uncertainty is at a high in the aftermath of events in the Middle East and the change of the US Administration. We caught up with Marsoft’s Costas Bardjis to learn more about the consequences for containership markets.
How will recent developments shape the containership industry?
The liner industry enjoyed two unprecedented boom cycles during the last four years. But at the end of January 2025, containership operators and vessel providers are waking up to a different world. Most importantly, Houthi militants announced last week that they will cease their attacks on ships and allow Red Sea traffic to resume immediately, a development which could shake liner earnings in the coming months. Moreover, the change of Administration in Washington could drastically change the industry’s fortunes starting in 2025 and carrying out well beyond.
What is the likely impact on the boxship markets of a resumption of Red Sea transits?
More than any other shipping sector, the Red Sea turmoil benefited the containership markets. Regularly, 18% of global containerized trade was shipped via the Suez Canal. About 90% of this trade was diverted to longer routes around South Africa, substantially bolstering TEU-miles and increasing vessel demand by an extra 8% in 2024. As a result, liner operators enjoyed booming rates, as they barely managed to cover demand requirements by rushing newly built mega-ships into east-west services. A restoration of Red Sea shipments could render much of the extra tonnage redundant, thus reinstating overcapacity and crippling liner freight rates.
How soon we may see a full resumption of Red Sea shipments?
A good question. Theoretically, immediately. More likely by this summer, if nothing else happens. And this is a big if. The Houthi militants justified the end of hostilities as the result of the ceasefire in Gaza. In reality, recent airstrikes by Israel, the UK, and the US have compromised Houthi port and strike facilities, while Iranian missile and ammunition supplies to Houthis have probably diminished following recent Middle East developments.
There are no guarantees that this picture will not change 6 or 12 months from today, nor that the Gaza ceasefire will last more than 60 days. Liner operators had planned their 2025 schedules on the premise that the Red Sea turmoil will continue throughout the year. It is costly to adjust liner schedules, and there is also the risk of the Houthi truce not lasting. Accordingly, we should see tanker and dry bulk Red Sea traffic resuming prior to liner traffic.
The containership industry is a copycat industry. If one or two global carriers resume services via the Red Sea, others will follow suit in short order. What we can say today is that the likelihood of container shipments via the Suez Canal normalizing this year has increased substantially since year-start.
What will the impact of normalization of Red Sea conditions be for charter-vessel owners?
Containership charter rates and vessel prices will follow liner freight rates (and profits) downward. However, unlike previous market downturns, many vessel providers find themselves in a strong position, having secured extensive employment for their fleet at superior rates. Hires for mid-sized and, especially, large containers extend to 3 to 4 years today. Cash-rich owners could capitalize on unique investment opportunities, should vessel secondhand prices adjust much lower than today’s elevated levels.
What is the likely impact of the new Trump administration on liner markets?
The US president is threatening widespread tariffs against political friends and foes alike. More so than during his first term in office, he thinks that he is entitled to carry out his agenda and is determined to do so. For the time being, political and business leaders are more likely to engage in dialogue with him than during his first term. But it is difficult not to see new tariffs and increased protectionism taking hold this year, developments which could lead to increased inflation, and compromise global trade and the world economy.
So, is it all negative for containerized trade?
There could be a positive path forward, but it is a narrow path. Mr. Trump prides himself on being a dealmaker. As Ms. Merkel wrote in her recently published book, he would respect a smart counterparty presenting alternative solutions. Concessions made outside trade capitulations could result in agreements (the carrot approach), while retaliation measures (the stick approach) could lead to escalation of tariffs. Nothing will satisfy him more than claiming credit for an agreement reached. A case in point is the recently reached agreement between the US longshoremen and the liner companies operating the US East Coast terminals, for which he was given full credit by the labor union.
But as I mentioned above, this is a narrow path forward and it is difficult for us not to be concerned with the road ahead.
How can the liner industry prepare against negative trade developments?
At the very least, liner operators should suspend newbuilding investments to the extent possible. Already, the outlook for 2028-2030 developments was getting dire for the industry due to excessive orders placed during the last seven months of 2024. A continuation of newbuilding activity into 2025, even at half the pace seen in 2024, would have spelled industry overcapacity after 2027 – even assuming that Red Sea diversions were to continue throughout that time. It is long past the time for global carriers to step on the brakes and wait out market developments, at least through 2025.