Are bears returning to freight markets?

Freight rates started 2025 with renewed increases following a tumultuous 2024 . However, increased capacity and the resolution of a looming US port strike has brought rates down. The key question now is how long this decline will continue, as there is the possible resumption of Red Sea transits on one hand and the expected trade war following Trump’s re-election on the other, awaited to pose a major challenge to rates.

Rates drop after starting 2025 with increases

Global container freight rates largely followed a rising trend from late October to early January, posting an approximate increase of 30% in total and hitting 4-month highs before they turned down this past week. Drewry’s world container index decreased by 3% to $3,855 per 40ft container on January 16. China- US routes led the recent decline. Drewry’s China to US West Coast rates decreased by 5% last week to $5,228 per 40 ft container, while US East Coast rates were down by 4% to $6,825 per 40 ft container. Prior to this recent fall, they respectively rose by 52% and 36% just in three weeks.

Drewry’s China to Northwest Europe route declined by 3% last week to $4,231 per 40 ft container, while rates to Southern Europe were down by 2% to $5,086 per 40 ft container. Unlike the China-US routes, downward correction started earlier in the routes from China to Europe. This is because rates experienced a much bigger surge of 55-66% between late October and mid-December, before they turned back down and eroded by a cumulative 7-13% since then.

Meanwhile, Drewry expects spot rates to decrease slightly in the coming weeks due to increased capacity.

US port strike averted

The International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) announced a tentative six-year contract on January 8, averting strikes that could have disrupted supply chains.

The strikes were set to begin on January 15 and would have led to the shutdown of ports along the US East and Gulf coasts. Xeneta’s Emily Stausbøll stated that the agreement must be welcomed because a strike had the potential to be a supply chain and economic disaster.

Looking ahead, it is likely spot rate growth will now soften on trades into the US from the Far East, suggesting a brighter outlook for shippers negotiating new long-term contracts. Shippers must remain cautious, however, because it will not take much for freight rates to begin spiraling again, particularly given the ongoing conflict in the Red Sea and the return of Trump to the White House, which could escalate the US-China trade war, said Emily Stausbøll, Senior Shipping Analyst, Xeneta.

Is return to the Red Sea imminent?

On January 15, a ceasefire agreement was reached between Israel and Hamas after months of diplomatic efforts by the US, Egypt, and Qatar. This development has raised hopes for the resumption of regular traffic through the Suez Canal. A return to the Red Sea route could lead to excess capacity, as vessels would no longer need to reroute around the Cape of Good Hope and would instead take the significantly shorter routes. Nonetheless, an immediate return to the Red Sea seems unlikely since rebel attacks could resume, even with the ceasefire.

Maersk and Hapag-Lloyd stated that they do not anticipate an immediate return to the Red Sea following the ceasefire. Both companies emphasized that they are monitoring the Middle East situation closely and would resume operations in the Red Sea only when it is deemed safe. Despite these uncertainties, Vespucci Maritime CEO Lars Jensen suggested a potential return to Suez routing by the second half of February, revising his earlier prediction that Red Sea routes would remain closed until at least August.

Challenges remain as trade war fears intensify

Donald Trump’s reelection raised fears of a global trade war. Trump has proposed several tariff measures, including a 10% tariff on global imports, a 25% duty on imports from Canada and Mexico linked to drug and migration concerns, and a 60% tariff on Chinese goods. Proposed tariffs on Chinese goods could further strain an already fragile Chinese economy, which is grappling with a property market crisis, high debt levels, and deflationary pressures.

Tariff anticipations have already led to shippers front-loading goods to avoid higher costs. China’s exports gained momentum in December, rising by 10.7% year-on-year, surpassing the 7.3% growth forecast and improving from November’s 6.7% increase. For 2024, exports rose by 5.9% from the previous year to $3.57 trillion, recovering from a decline in 2023.

According to Xeneta, the last time Trump ramped up tariffs on Chinese imports during the trade war in 2018, ocean container shipping freight rates spiked more than 70%.

For now, uncertainty reigns

The question now is how long this decline will persist, but the challenges remain significant. The impact of Trump’s second term on global trade and the potential resumption of Red Sea shipping routes are critical factors shaping the outlook. Amidst the uncertainty, one thing is clear: 2025 is shaping up to be another challenging year for the shipping industry.