Letter from the Editor

By Mark Szakonyi

The danger of not pulling capacity fast enough when demand plunges still resonates.

External forces and a modicum of industry discipline mitigated yawning overcapacity in container shipping in the first half of 2025. But the sharpest pressures on ocean carriers’ capacity control, and resulting pricing, in the coming year are only intensifying— as reflected by the plunge in container spot rates on the trans-Pacific.

The signs and rewards of capacity discipline in the first six months were modest. Container lines concluded annual trans-Pacific service contracts at levels 10 % to 20 % higher than last year, moving closer to $ 2,000 per FEU to the US West Coast for midsize importers, executives at three container lines said.

Those gains are less impressive when carriers’ operating costs have risen in the mid-single digits in the same period, largely due to higher chartering rates and terminal charges, but still speak to an increasing control of the market.

Service contract rate levels in the past have crumbled in the face of a second-half plunge in spot rates, with importers successfully demanding pricing relief on minimum quantity commitments( MQCs) agreed to earlier in the year. There is no guarantee carriers would show the same resolve if a spot rate plunge followed the early and already waning peak season. But the fact that carriers mostly kept contracted importers to their MQC when spot rates began spiking in early May bodes well for their resolve.

“ We won’ t be revising contracts,” an executive at a major Europe-based container line said he told major customers, adding that the biggest shipper customers finally realize that sharp enough rate declines will spur major capacity withdrawals, jeopardizing their restocking plans.

The danger of not pulling capacity fast enough when demand plunges, such as during the 2008 – 09 global financial crisis, still resonates. When outbound China bookings surged in early May, carriers were able to add about 600,000 TEUs of capacity in the trans-Pacific in about a month, equating to up to 15 % more weekly capacity than normal deployment levels, said Michael Aldwell, executive vice president of sea logistics at Kuehne + Nagel( K + N).

Mediterranean Shipping Co.( MSC) no longer being in an alliance gave it a free hand to restore capacity faster, and a modest peak season in Asia – Europe allowed the world’ s largest carrier by fleet tonnage and its rivals to deploy extra loaders. The Gemini Cooperation of Maersk and Hapag-Lloyd substituted smaller vessels for larger ships when demand plunged, and then reversed course when bookings rebounded.

But intra-Asia carriers piling into the trans-Pacific to take advantage of rising spot rates, coupled with a weaker-than-expected volume surge tied to the reprieve in higher US tariffs, began pulling down rates in early June. Carriers’ greater control of capacity“ is a good thing, because we need stable, profitable ocean carriers to have a healthy industry,” Aldwell said in a June 16 interview at K + N’ s headquarters in Schindellegi, Switzerland.

“ The last thing we need is another Hanjin [ Shipping ] crisis,” he added, referring to the 2016 collapse of the South Korea-based carrier,“ because we’ ve got long sustained losses in an industry which is so vital to global trade.”

MSC and CMA CGM’ s major purchase of second-hand tonnage, sapping the amount of available chartered tonnage, has also served as a backstop to overcapacity, said Jeremy Masters, a shipping analyst and Journal of Commerce contributor. Approximately 2.3 million TEUs of capacity in the most-traded sector of the charter market— 7,000- to 9,000-TEU ships— has shrunk by 3.7 million TEUs in the last five years, according to analyst Alphaliner.

“ Of course, there will be a point of oversupply where even if all the assets were in the hands of the carriers, they would not be able to park enough ships in a concerted enough fashion quickly enough to keep supply below demand and thus keep rates up,” said Masters.

External factors such as port congestion are also tying up functional capacity. Northern European ports have been congested for months, while Asian ports such as Shanghai and Singapore have also been heavily affected.

Major container lines still view Suez Canal transits as too risky, even after US President Donald Trump’ s early May assertion that the Houthi rebels would stop attacks on commercial shipping in the Red Sea. US missile attacks on Iran on June 21 demolished that fragile peace.

The real test for container capacity control, according to the Europe-based shipping executive, will be after Golden Week, the week-long holiday in early October in which Chinese factories slow or halt production.

US retailers’ confidence may falter by then, and the signals pointing to future consumption are worsening. In May, US retail sales fell, residential housing construction reached a five-year low and employment shrank, while airline travel fell in April and May.

email: mark. szakonyi @ spglobal. com

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