The Trump Administration’s global tariff attack muddies the outlook of ocean carriers in 2025…and maybe beyond.
Peter Sand is chief analyst at Xeneta, the ocean and air freight rate benchmarking and market intelligence platform, whose portfolio of shipper customers includes some of the world’s leading multi-nationals.
In an interview with AJOT, Sand considered the current state of container shipping and the market outlook, while sharing his views on a variety of issues facing the different players in the sector, including US tariff policy, the prospect of a return to safe navigation in the Red Sea and commercial relations between the box lines and their shipper customers. He also commented on the latest developments in the lines’ alliances.
Taxes and Tariffs
Sand highlighted that a 10% hike in duties on Chinese-origin, effective 1 February, had already contributed to a fall-off in box volumes in the first quarter of the year. This was borne out by data from Xeneta which showed that average spot rates on the Far East front-hauls into the US East and West Coast have fallen 43% and 50% respectively since 1 January, he said.
And with the front-loading seen earlier in the year now easing, spot rates are likely to continue the downward trajectory.
Sand warned that carriers are likely to tap into the fear caused by the tariffs to arrest this decline just as they had on 1 April when spot rates to the U.S. East and West Coast increased by 8% and 14% respectively. “This increase will not last, so shippers must trust the data, shut out the noise, and target the right level (of rates).”
Red Sea Disruption to Continue
The Houthis’ attacks on shipping in the Red Sea that began in October 2023 has wreaked havoc on the schedules of the ocean lines’ and obliged them to re-route vessels around Africa, lengthening journey times considerably.
The agreement between Israel and Hamas on a ceasefire in Gaza triggered optimism that it could lead to the Yemeni rebels suspending their actions. However, recent US missile strikes by air and sea on Houthi bases appeared to have dashed any hopes of such an outcome for the next six months at least, according to Sand.
“It’ll probably be 2026 before there’s a large-scale return of box ships to the Red Sea/Suez Canal. While in the meantime there could well be a steady decline in freight rates towards pre-disruption levels, a ‘Red Sea premium’ that will be anything between $500 and $1,500 per box, depending on the trade, to cover the cost of the longer journey times and the squeeze in capacity this has created, will keep freight rates relatively high.”
ILCs to Combat Market Volatility
Turning to the commercial relations between carriers, forwarders and shippers, Sand underlined that in a market where uncertainty has become the norm, having some visibility on how rates might evolve, even if it is limited, is clearly warmly-welcomed by all parties.
He pointed to the growing popularity of index-linked contracts (ILC) which track freight rates and offer periodic price adjustments to the agreed rate.
“With an ILC, a mechanism is put in place, that provides scope to lift the paid price of transportation (freight rate) but at the same time ensures that the shippers’ cargo will always be moved, regardless of fluctuating (rate) trends, because they will never be ‘priced out’ of the market so to speak. So, for shippers, once you get your head around the concept you see the upside. And for service providers, they still have a firm grip on the volumes and are getting paid something that looks like the going rate.”
He compared ILCs with fixed, long-term contracts, of $1,000 per box, for example, but where a sudden, short-term hike could see rates shoot up to $3,000 per box. “The carrier or forwarder might not necessarily be in such a hurry to move your cargo because they can see higher-paying boxes around. So, I see ILCs as a smart move going forward for shippers, forwarders, and carriers and one which allows them to sleep pretty well. Even though it may suit some trades better than others, it’s definitely something we see as a must-have in the future. “It’s a solution particularly well-suited to markets that show great volatility, such as the North America trades, where uncertainty is at such a pitch that it’s difficult to know what level of rates to sign up for.”
Carrier Alliances
The on-going ‘re-jig’ within carrier alliances is also a topical talking point in the container shipping sector and another cause of uncertainty, Sand observed. The Gemini Cooperation entered service on 1 February, bringing together Maersk and Hapag-Lloyd, after exiting 2M and THE Alliance respectively. (see Alliance chart on page 22) “Gemini offers a service focused on around a few mega hubs served by a spoke system which differs from more traditional networks based on more and more direct port calls. You could argue that this is creating more complexity from a shippers’ perspective. But they will have more options and greater scope to choose one carrier and one alliance on one trade and another carrier in another alliance on another trade – even though at the moment it might be tricky to assess which one is the best for them.”
He said this was because the complete roll-out of the changes from any of the alliances is probably several months off. “It’s likely to be the summer before the new alliances and new networks are fully operational.” Carriers and their alliances have come in for plenty of criticism over the years, arguably reaching a height during the COVID years when box rates went through the roof and capacity was reserved for the highest bidders.
The move by some carriers to transform themselves into logistics integrators has also caused tensions with forwarders and shippers. “The alliances are far from perfect, but I believe they ensure a better use of the assets from a carrier perspective and arguably also deliver a better service and a better product to the shippers.”
Carrier Profitability and Outlook
While carriers’ earnings have steadily declined since the so-called COVID years, they remain well above where they were pre-pandemic. The question is for how much longer? “When we look at the underlying fundamentals of the container shipping market, capacity is outstripping demand. If we go back to the time leading up to the Red Sea disruption, carriers were in a loss-making position. In the 18 months that have followed, we have seen an increase in fleet sizes of around 15% and an increase in volumes moved of around 10%.
“So, market conditions have actually deteriorated. However, as long as the Red Sea disruption persists and vessels continue to re-route around Africa, carriers will continue to be profitable at a more than reasonable level provided they are savvy when it comes to capacity management.”
Looking ahead to 2026, Sand noted that the possible return of ships to the Red Sea/Suez Canal would open the door to the effects of the capacity increases that have built up “which if accompanied by mediocre demand could push rates down to levels where carriers find it difficult to cover their costs. But this remains conjecture.”
