Red Sea return of ships could see freight rates crash: Xeneta

The prospect of a large scale return of container ships to the Red Sea following the announcement of a ceasefire between the U.S. and Houthi militia in Yemen would flood the market with shipping capacity and cause a global collapse in freight rates – but the situation remains far from certain.

Global TEU-mile demand would decline six percent if container ships begin sailing through the Red Sea and Suez Canal again instead of diverting around the Cape of Good Hope, according to the latest update from Xeneta.

"TEU-mile demand factors the distance each TEU is transported globally as well as the number transported. The six percent is based on global container shipping demand growth of one percent for full year 2025 and a large scale return of container ships to the Red Sea in H2."

Peter Sand, Chief Analyst, Xeneta says: "Of all the geo-political disruptions impacting ocean container shipping in 2025, conflict in the Red Sea continues to cast the longest shadow; so any meaningful return to the region would have massive consequences.

"Container ships returning to the Red Sea would flood the market with capacity with the inevitable outcome of collapsing freight rates. If we also see a continued slowdown in imports into the U.S. due to tariffs, then the collapse will be even harder and even more dramatic."

Impact on freight rates
Average spot rates from the Far East to North Europe and Mediterranean are $2,100 per FEU (40ft container) and $3,125 per FEU, respectively. This is an increase of 39 percent and 68 percent compared to pre-Red Sea Crisis levels on December 1, 2023, the update added.

"From the Far East to the U.S. East Coast and U.S. West Coast, spot rates stand at $3,715 per FEU and $2,620 per FEU, respectively. This is an increase of 49 percent and 59 percent compared to pre-Red Sea crisis."

Sand says: "Carriers have capacity management strategies to keep rates elevated, such as blanking sailings when demand falls. But the amount of capacity that would flood the market following a return to the Red Sea, combined with a downturn in global container demand due to tariffs and high deliveries of new vessels would require capacity management at an altogether different order of magnitude – or another major black swan event – to stop freight rates falling to a level that puts carriers in a loss-making position.”