Letter from the Editor

By Mark Szakonyi

Thanks to consolidation and better capacity management, old ways of looking at capacity are no longer relevant.

The conventional thinking is that container lines are heading for another down cycle due to mounting overcapacity and weakening global demand. After record profits during the COVID-19 pandemic era and $ 60 billion more in 2024, the industry is“ entering a multi-year period of losses,” J. P. Morgan said in a March 17 research note.

That may very well be how this year and 2026 shake out. But a scenario in which external factors keep restraining effective container shipping capacity and carriers muster enough pricing discipline isn’ t outlandish, either.

Internally, thanks to consolidation over the last two decades and better capacity management in recent years, whether through blank sailings or holding firm on contract allocations when space gets tight, the old ways of looking at capacity are no longer relevant.

Even so, the size of the current order book is daunting; new orders represent a quarter of the existing fleet, according to S & P Global’ s Sea-web, a sister company of the Journal of Commerce.

Maersk CEO Vincent Clerc said around 2 million TEUs of capacity will be delivered this year, equating to 6 % of the existing fleet, according to Sea-web. Reopening the Red Sea to commercial traffic could release another 1.5 million to 2 million TEUs, Clerc said during the company’ s first-quarter earnings call Feb. 6. The industry’ s return to Suez Canal transits is expected to cause three to six months of disruption, with ships repositioning and causing bunching at European and US East Coast ports, ultimately reducing effective capacity.

“ The overcapacity anticipated last year has been delayed to 2025, but the supply-demand equation is much more nuanced and benign than what we had in front of us just a year ago before the outbreak of the Red Sea disruption,” Clerc told investors. He added that Maersk expects stronger global demand in 2025 than last year, expanding at 4 %— in line with the market— despite the US slapping tariffs on goods from China, Europe and other trading partners.

So much depends on when the container shipping industry deems it safe to route through the Red Sea. US President Donald Trump’ s decision to move a second aircraft carrier to the Middle East on March 23, a week after his order of strikes on Houthi-held areas in Yemen, may not open the waterway as he hopes.

“ The resumption of US airstrikes significantly increases the likelihood of further Houthi attacks on US and US-allied naval assets in the Red Sea and Gulf of Aden— representing a severe risk to all vessels in transit due to uncertainties around Houthi targeting selection,” said Jack Kennedy, head of Middle East and North Africa country risk at S & P Global Market Intelligece.

Kennedy said it was unlikely that the US would be able to“ restore unchecked freedom of navigation” in six months by pressuring Iran to stop helping its Houthi proxies. He doubts that the US can uproot the Houthi without help from the UAE and Saudi Arabia, a move that would most likely trigger retaliation from the Houthis. The Israel-Hamas ceasefire, announced Jan. 15, initially raised hopes of a quick return, Jeremy Nixon, CEO of Ocean Network Express( ONE), said at Singapore Maritime Week.

“ That doesn’ t look likely now based on the events, particularly in the last week, so probably routing around the Cape of Good Hope is a continued paradigm for likely the rest of this year the way things stand,” Nixon said.“ And that has a big impact on our operations [ and a ] big impact on the supply and demand.”

Independent of the Red Sea situation, carriers still have unused levers to curb overcapacity, including idling and slow steaming, Jan Tiedemann, senior analyst at Alphaliner, said at the Journal of Commerce’ s TPM25 conference. Less than 1 % of tonnage is idling, reflecting the belief of carriers that it’ s better to have extra tonnage in case of disruption than send older vessels to the scrap yards, he said. Scrapping last year was well below 1 %, but there is limited yard capacity to break ships if carriers retire older tonnage. While container lines have sailed ships faster due to Red Sea diversions, there is plenty of functional capacity that can be reabsorbed by slowing down by just a few knots.

“ That doesn’ t seem a lot, but if [ a ] ship only sails at 18 knots, and it goes down to 15, that’ s quite a reduction in terms of the percentage” of capacity needed, Tiedemann said.

Global port congestion and other events that pull down ocean reliability are curbing the effective capacity of the fleet, according to Simon Sundboell, CEO of maritime intelligence firm eeSea. For example, deployed capacity from Asia to Europe, North America and the Caribbean and Central America rose 7.9 % in 2024, but functional capacity growth was just 3.4 %.

The question for 2025 and beyond is not whether there will be tonnage overcapacity, as there surely will be, but to what degree there will an overhang of functional capacity.

email: mark. szakonyi @ spglobal. com

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