Freight Rates at Risk if Container Lines Switch to Red Sea Route: Xeneta

A tanker passing through the Suez Canal. Image Credit: Suez Canal Authority

A potential return of container ships to the Red Sea following a US-Houthi ceasefire could cause a global collapse in freight rates, according to ocean freight analytics firm Xeneta.

"Container ships returning to the Red Sea would flood the market with capacity with the inevitable outcome of collapsing freight rates," Peter Sand, chief analyst at Xeneta, said.

If carriers resume Suez Canal transits instead of routing around the Cape of Good Hope, global TEU-mile demand could fall 6%, Xeneta data shows.

This projection assumes modest demand growth of 1% in 2025 and a full-scale return to the Red Sea in the second half of the year.

Current spot rates remain elevated, with Far East to North Europe rates at $2,100 per FEU, up 39% from pre-crisis levels, and US East Coast rates at $3,715 per FEU, up 49%.

Ship & Bunker had reported yesterday that CMA CGM is keen to make a full return to Suez Canal transit.

However, it remains uncertain whether carriers will view the route as safe for resuming transits. Houthi social media accounts have continued to post provocative statements against the US and Israel - a long-standing tactic that underscores the fragile security situation in the region.

Sand noted that "carriers have capacity management strategies to keep rates elevated," but warned that the scale of returning capacity, combined with slowing demand and new vessel deliveries, could overwhelm those efforts.

Despite the ceasefire announcement, Sand said carriers remain cautious: "Carriers and shippers do not want to go through the disruption of restoring schedules to the Suez Canal only for the situation to deteriorate – sending them back to square one."

He added that Houthis have stated the ceasefire excludes Israel, which continues to pose a threat to regional shipping security.

A full return would also impact global bunker demand. Shipping firms such as Hapag-Lloyd and Ocean Network Express (ONE) reported higher fuel consumption in 2024 due to Red Sea diversions.