Resolution of Red Sea Crisis Set to Rekindle Container Shipping Challenges

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Clarksons’ recent analysis on container shipping indicates that the current weak supply-demand dynamics are poised to become more pronounced once the disruptions in the Red Sea subside.

The growth of the boxship fleet is projected at 9% for this year, significantly outstripping the anticipated demand increase of around 4%.

Should the Red Sea predicament be resolved by the latter half of 2024, the industry might confront challenges reminiscent of those experienced following the Covid-19-induced surge.

Clarksons elaborates, “The circumstances remain volatile, yet a resolution in the near term appears improbable. Should the situation ameliorate, unwinding the disruption would likely take time; our current ‘base case’ scenario anticipates a disruption throughout the first half of 2024, resulting in an approximate 6% boost in full-year 2024 TEU-mile trade. This ‘boost’ is anticipated to be concentrated in the first half, with demand trends expected to stabilize post-disruption. However, an extended rerouting period could exert a more significant impact.”

The world’s premier shipbroker observed that to counteract the tonnage deficit caused by extended voyages via the Cape of Good Hope, operators have increased vessel speeds. Operating speeds in late March averaged 14 knots, a 1% increase from the 2023 average.

In February, the delivery of 18 container ships totaling 145,000 TEUs brought the year-to-date tally to 67 units of 449,000 TEU, marking a record in capacity terms. The forecast for 2024 anticipates deliveries reaching 2.7 million TEUs, setting a new record, with an additional 2 million TEUs expected in 2025 and 2026—doubling the average of the preceding four years.

The potential resolution of the Red Sea crisis could make 2025 a year of challenges, with fleet growth anticipated to exceed 5%, despite the likelihood of increased vessel demolitions.

Moreover, the reintroduction of stricter environmental regulations will necessitate a return to slow-steaming once Suez Canal transits resume. The gap between supply and demand could further narrow, with demand growth projected at 3% in 2025.