Rough seas for global maritime sector, Red Sea return will be tipping point
Shipping companies are facing a year of major shifts in 2025, with potential trade conflicts and new fleets of ships threatening to disrupt the market, according to a new report from consulting firm AlixPartners.
Some of the unexpected profits that came out of the blue last year, in part driven by disruptions like the Red Sea crisis, are unlikely to repeat this year. New US tariffs, the retaliatory tariffs from other countries that will follow, and several other factors are creating significant uncertainty in the industry.
When Houthi rebels in Yemen began attacking ships transiting through the Red Sea last year, the negative effects were felt almost right away. Virtually overnight, up to 8% of global capacity was diverted as Red Sea cargo ships were rerouted around the Cape of Good Hope, thousands of miles away in South Africa.
The effect of that major detour, combined with more detours caused by disruptions in the Panama Canal, was that excess capacity in the market quickly disappeared. That meant very tight supply, which drove rates up dramatically. For example, the China Containerized Freight Index (CCFI) inflated to 150% from the start of the crisis to July 2024.
But now, the Red Sea shipping route is set to mostly reopen as the Houthis announced they will not attack non-Israeli vessels. Shipping companies, after a profitable 2024, are waiting to see if peace agreements in the Middle East will hold. Most experts believe ships will continue to avoid the Red Sea for at least the first half of 2025.
When shippers do resume transiting in the Red Sea, it will release a huge amount of shipping capacity. This, combined with a record number of new ships being delivered, could lead to a significant oversupply. Around 200 new vessels are expected in 2025 alone, according to the report.
New shipping alliance
A new shipping alliance aimed at improve reliability, Gemini Cooperation, was launched in February by global shipping leaders Maersk and Hapag-Lloyd. This new network could offer an alternative to traditional port-to-port shipping, but might come with higher costs.
The industry is also seeing a reduction in the number of major alliances, which could lead to increased competition. If the Red Sea reopens and new ships enter the market, freight rates are likely to drop sharply.
The challenges of sustainability
Another factor that could cause more uncertainty this year is the continued pressure to shift to sustainability in the shipping industry. Cleaning up fleets and shifting to sustainable energy is no easy task and major changes will be costly.
Many shippers are indeed already making steps to modify or decarbonize their fleets, but 90% of the world’s vessels still use high-emissions systems. To make matter more complicated, there is also growing pressure to implement noise-limiting measures in order to cause less harm to marine animals.
“The double whammy effect of Suez reopening and Gemini cooperation on container shipping operations could be nothing short of revolutionary,” said Marc Iampieri, global co-leader of AlixPartners’ logistics and transportation practice.
“And we could see a triple whammy if a raft of new tariffs is imposed by the U.S. and other major trading nations. Once the Red Sea crisis is resolved, the supply-demand dynamic could shift in favor of shippers, and rates could fall as quickly as they rose.”
