Red Sea Crisis Less Severe Than Covid-19, Anticipated Challenges in 2025




The repercussions of the Red Sea crisis pale in comparison to the Covid-19 pandemic, yet the increase in TEU-miles has been noteworthy.


Clarksons' most recent edition of the Container Intelligence Monthly reveals that TEU-miles surged by approximately 11% compared to December 2023, as about 620 vessels, encompassing 8.5 million TEUs, have diverted their routes from the Suez Canal to the Cape of Good Hope to evade assaults by Houthi insurgents.


When juxtaposed with the Covid-19 era, characterized by a boom in e-commerce sales and intensified inspections leading to global logistical gridlocks, Clarksons observed that the ramifications of the Red Sea situation have been more benign.


The Shanghai Containerised Freight Index (SCFI) reached a zenith of 5,110 points in January 2022, but as of now, the index has been oscillating around 2,200 points.


Clarksons remarked, “Indeed, although shipper expenses have surged considerably amidst the current turmoil, they still fall short of the peaks experienced during the pandemic.”


The globe's preeminent shipbroker highlighted that the cost of transporting a pair of shoes from Asia to Europe escalated from 21 US cents in early December 2023 to 78 US cents by mid-January 2024, yet this figure remains beneath the January apex of US$1.95.


Clarksons elaborated, “Thus, while the significant disruption in the Red Sea is not engendering impacts on the container market as grave as those witnessed during the Covid-19 upheaval, the consequences are nonetheless substantial, with a pronounced TEU-mile demand ‘surge’. The uncertainty surrounding the duration of this disruption, and the longevity of the prevailing robust market conditions, underscores the importance of vigilantly monitoring the challenging ‘underlying’ supply-demand dynamics. For the moment, the developments in the Red Sea command paramount attention.”


In the face of escalating demand, the absorption of tonnage supply has intensified, further exacerbated by a myriad of other supply-side effects; for instance, rerouting has led to delays in schedules and cancellations of sailings, resulting in tardy or entirely missed port calls, while the necessity to reposition vessels and adjust ‘hub-and-spoke’ services has induced inefficiencies. Additionally, the diversion of Far East-Europe services, which would have traditionally made stops at Middle Eastern ports, has affected capacity on certain routes, such as the Far East-Middle East lane, and the upheaval has also precipitated a scarcity of containers in some regions.


Nonetheless, once the crisis abates, 2025 is anticipated to pose a formidable challenge for container shipping, with an influx of over 2 million TEU of newbuilding deliveries that year, culminating in a fleet expansion of 5%.


Clarksons warned, “Managing capacity will likely prove arduous, given the magnitude of cumulative supply growth (the fleet by the end of 2025 is projected to exceed the size at the start of 2023 by more than 20%). A robust year for container trade volume growth is, however, forecasted at 3%, and further reductions in vessel speeds could alleviate some of the supply strain (with ongoing efforts to reduce emissions and adhere to green policies providing support), potentially enabling markets to stabilize as macroeconomic challenges diminish.”