Container Shipping Quarterly

Special Report

COMMENTARY

By Lars Jensen

Although the flow of cargo will not stop, costs for US importers and exporters will rise.

There appears to be no end to the alarmist headlines regarding the impact on container shipping from the rapidly changing political decisions taken by the new US administration, as well as wider geopolitical challenges.

Perhaps it is time to add another perspective into the mix. Let us get a few things straight first. The Red Sea crisis continues to have a major impact on container shipping. Diversions around southern Africa continue to keep vessel capacity in short supply. The amount of idle container vessels, 0.6 % in February, has been well below 1 % since February 2024. This is the same low level of idle capacity we saw during the height of the COVID-19 pandemic disruptions and implies that there is effectively no material excess capacity available.

This is the foundation for freight rates remaining at a relatively elevated level despite recent declines.

But it should similarly be noted that amid the Red Sea crisis, the supply chain adapted to the new situation and freight kept moving, with 2024 being yet another record year in terms of total TEUs shipped.

Also keep in mind that during the worst of the pandemic disruptions, spot rates increased to levels far beyond anything seen previously. Even the Red Sea crisis did not bring rates anywhere near the peak of 2021 – 22.

However, despite those extremely elevated rates, freight continued to move at record levels, and none of this led to the onset of a major financial downturn. High rates during the pandemic may have contributed to ongoing inflation, especially in the US, but they did not bring the economy to a standstill.

This brings us to the challenges of 2025. The Red Sea crisis appears likely to continue for the medium term, which also lays the foundation for a strong peak season in 2025, unless demand is negatively impacted by recession or inventory corrections, or a combination thereof.

But with more new capacity on the way in 2025, pressure on the supply / demand balance will be less than in 2024, and hence clearly a manageable situation.

The rapid changes in tariffs driven by the new US administration create major uncertainties for shippers. But this is mainly a monetary uncertainty in terms of calculating landed costs, and in the case of exporters, how competitive they will be. The tariff challenges do not translate into any specific operational bottlenecks in terms of vessel or equipment capacity, although concerns could be raised as to whether customs clearance in the US might become a bottleneck.

If anything, should a more stable tariff environment emerge, the flexibility of container shipping networks will likely lead to a fairly swift and efficient change in network coverage that allows shippers to shift to better sourcing and / or routing of cargo.

A risky proposal

Then there’ s the United States Trade Representative’ s( USTR) proposal to hit Chinese-made and-operated vessels with fees of up to $ 1.5 million per US port call.

Estimates place the annual cost of this between $ 20 billion and $ 30 billion if implemented with no changes. One effect will be that carriers are likely to reduce their port coverage in the US, favoring larger ports and deselecting some of the smaller ports. This was confirmed by Mediterranean Shipping Co. CEO Soren Toft at TPM25.

Carriers will also likely attempt to route more cargo via Canadian and Mexican ports, as well as reduce the number of services while phasing in larger vessels. That, in turn, will create congestion at the ports.

Does this constitute a calamity for the supply chain? It depends on the individual assessment of what a“ calamity” is. But if we draw on the lessons from the last five years, we can predict that although the flow of cargo will not stop, costs for US importers and exporters will rise.

The estimate of the total costs of USTR fees amounts to an average of roughly $ 1,000 per FEU for all US import and export containers. This will likely be substantially more on the import cargo and less on the export cargo. Seen in the context of the freight rate spikes endured by shippers affected first by the pandemic and then by the Red Sea crisis, an increase of $ 1,000 per FEU or more has indeed been handled before. But, of course, not without cost to the shippers.

Still, the more troubling aspect of the USTR proposal is the risk of creating port congestion. The real driver behind the price spikes in 2021 – 22 and 2024 was a shortage of capacity. Port congestion effectively removes capacity from the market, and presently there is no excess capacity. The $ 1,000-per-FEU impact of USTR 301 might pale in comparison with the freight rate increases that could follow congestion- linked network changes.

email: lars. jensen @ vespucci-maritime. com

28 Journal of Commerce | April 7, 2025 www. joc. com