The Red Sea crisis, one of the most significant disruptions to global shipping in recent years, maybe at a turning point following the January 19th ceasefire between Israel and Palestine. Yemen’s Houthi forces have announced a halt to attacks on commercial vessels, except those directly related to Israel. This announcement comes after a tumultuous year marked by over 100 attacks, the sinking of two ships, and multiple fatalities, leaving carriers, insurers, and shippers navigating an environment fraught with uncertainty.

While the ceasefire offers a glimmer of hope for the resumption of Red Sea trade routes and the Suez Canal, lingering geopolitical risks and operational concerns suggest that global shipping is not yet out of the woods. For insights into contingency strategies amid such uncertainties, watch the webinar with Flexport CEO Ryan Petersen and Hapag-Lloyd CEO Rolf Habben Jansen, discussing these topics in detail.

Key Developments in the Red Sea Crisis

On January 19th, a ceasefire was established in the Israel-Palestine conflict. In response, Yemen’s Houthi forces announced they would limit attacks on commercial vessels in the Red Sea to those with direct links to Israel. This comes after more than 100 attacks since November 2023, resulting in the sinking of two ships, the seizure of another, and the deaths of at least four seafarers. The Houthis’ stance, however, remains conditional. They have indicated they would resume broader attacks if the ceasefire agreement falters or if U.S. and U.K. forces conduct operations in Yemen. Their historically unclear definition of “Israeli-linked” vessels further complicates risk assessments for carriers considering a return to the region.

Industry Sentiment: Cautious Optimism

The shipping industry remains cautiously optimistic but hesitant to fully embrace the potential reopening of Red Sea trade routes. Leading carriers like Maersk, Hapag-Lloyd and MSC have publicly expressed skepticism, citing the fragile nature of the ceasefire and the unpredictable behavior of Yemen’s Houthi forces. Many carriers are adopting a wait-and-see approach, emphasizing that it’s too early to make significant operational changes. While the six-week ceasefire agreement provides temporary relief, historical volatility and the Houthis’ unclear definition of “Israeli-linked” vessels continue to create uncertainty.

Executives from the shipping, insurance, and retail sectors have voiced concerns over whether the Houthis will uphold their promises, especially if external factors such as actions from U.S. or U.K. forces in Yemen disrupt the current truce. Industry leaders are watching closely, balancing hope for a stable resolution with the reality of a still-uncertain geopolitical landscape.

Impacts on Global Shipping Dynamics

The potential reopening of Red Sea trade routes via the Suez Canal would significantly reshape global shipping dynamics, particularly in balancing capacity and demand. The crisis compelled carriers to divert vessels around the Cape of Good Hope, which temporarily reduced available shipping capacity and helped sustain higher freight rates.

However, returning to the shorter Suez route could reintroduce an overcapacity scenario that has been building for over a year. In 2024, the global fleet expanded by 10.5%, while demand, measured in TEU miles grew only 7.1%. This mismatch placed pressure on freight rates even before the Red Sea crisis began. If vessels revert to using the Suez Canal, the previously mitigated overcapacity will become evident again, driving down spot rates.

Additionally, the sudden availability of tonnage could lead to temporary congestion in European ports, further complicating the transition back to normalcy. Carriers are likely to explore strategies to address the looming oversupply, including ramping up vessel scrapping, which was historically low in 2024, or enforcing more structured blank sailings to limit capacity. Despite these potential adjustments, the market would still face significant downward pressure on rates, creating a challenging environment for carriers and opportunities for cost savings for shippers assuming geopolitical stability persists.

Shippers Face Uncertainty for 2025 Contracts

Shippers negotiating contracts for 2025 find themselves in a particularly precarious position as they weigh the potential outcomes of the Red Sea ceasefire. On one hand, if the truce holds and vessels revert to the Suez Canal, freight rates could drop significantly due to the resurgence of overcapacity.

A global fleet that grew by 10.5% in 2024 already outpaces demand growth, and the reintroduction of Suez routes would flood the market with additional capacity, driving rates to near or even below break-even levels for carriers. According to the IMF, global trade is projected to grow by 3.1% in 2024 and 3.4% in 2025. While these figures do not specifically address container TEU-miles, they suggest that demand growth in 2025 will remain close to 2024 levels, meaning it is unlikely to catch up with capacity.

In 2025, you will have to navigate significant shifts in demand and alliances, as the global supply chain adapts to new economic realities and environmental pressures. However, a scenario of reopening the Suez Canal could also lead to temporary congestion at European ports, introducing additional complexities for shippers.

On the other hand, a breakdown of the ceasefire would mean the continuation of costly deviations around the Cape of Good Hope, sustaining elevated rates through the peak season in mid-2025. Shippers must also consider the geopolitical risks, as any escalation such as renewed Houthi attacks on merchant vessels or increased conflict involving U.S. or U.K. forces could quickly disrupt already fragile supply chains.

For now, the lack of clarity on the long-term stability of the ceasefire, coupled with the Houthis’ ambiguous targeting criteria for “Israeli-linked” vessels, makes it difficult for shippers to commit to fixed long-term contracts. Instead, many adopt flexible strategies, incorporating spot market options and contingencies to navigate potential volatility. Relying on a one-carrier strategy introduces additional risk, as a single contract type based on one carrier may lack the flexibility needed in uncertain conditions. The key for shippers in this landscape is to remain adaptable, closely monitor developments, and maintain open communication with carriers to mitigate risks effectively.