Container Shipping Quarterly

Special Report

Asia – Europe shippers sail into contract talks with Red Sea top of mind

By Greg Knowler

The Red Sea crisis will be at the top of the agenda for Asia – Europe shippers as they prepare to enter 2025 contract talks with ocean carriers anxious to avoid a repeat of the chronic space constraints and soaring rates experienced throughout this year ’ s peak season .

While the diversions around the Cape of Good Hope are now firmly established within container shipping supply chains , a hoped-for return to Suez Canal transits at some point next year is likely to cause rates to fall fast as vessel capacity outstrips demand .

Asia – Europe shippers are factoring this eventuality into their 2025 contracts , Antonios Rigalos , managing partner at beneficial cargo owner ( BCO ) network CrossStaff , told the Journal of Commerce in late October .

“ It can be assumed that the situation in the Red Sea will not be solved soon , and it is anticipated carriers will avoid Suez Canal transits for at least the next six months , or even longer next year ,” Rigalos said .

“ This is an unknown for the industry , and the uncertainty we faced this year continues and will be carried over also to 2025 ,” he added .

“ It can be assumed that the situation in the Red Sea will not be solved soon .”

Avoiding ‘ all-baked-in ’ rates

CrossStaff negotiates contracts with carriers on behalf of its network of BCOs . Rigalos said members want stability in their supply chains through 2025 that they could plan around .

“ We will apply the same logic as we did at the end of last year in our current agreements that have flexible terms ,” he said . “ In that way , we will be prepared in case the Red Sea reopens and rates fall , while at the same time making sure our terms and conditions are good enough to secure the required space and equipment .”

Many European importers begin their annual contract talks with carriers in the fourth quarter of each year , with the fixed-rate deals typically running from January through December .

Peter Sand , chief analyst at rate benchmarking platform Xeneta , said the Red Sea would be the center of attention for shippers wanting to avoid an all-baked-in rate next year that would need to be renegotiated time and again should rates fall as carriers make a partial or complete return to the shorter route via the Suez Canal .

“ Every shipper now looking to negotiate long-term rates for 2025 will seek to separate the effect of Red Sea transits resuming from the base rate because that way it will be easier for them to get rid of any surcharges that have been related to the Red Sea ,” Sand told the Journal of Commerce .

When the Red Sea will be safe for commercial shipping remains anyone ’ s guess , but Parash Jain , global head of transport and logistics research at HSBC , said the bank ’ s base case had Red Sea disruptions unwinding in the second half of next year , leading to shipping capacity being released back into the market . Attacks on commercial shipping by Houthi militants operating from southern Yemen have essentially made the Red Sea and Gulf of Aden a no-go zone for vessels since late last year .

“ Effective capacity growth should exceed 10 % in 2025 compared to nominal fleet growth of about 7.6 %, while we expect demand growth to moderate to 2.7 %,” Jain said in a late-October market update .

HSBC has forecast that should there be a return to the Red Sea , excess capacity in the market will see the Shanghai Container Freight Index ( SCFI ) decline 40 % year over year in 2025 and fall a further 33 % in 2026 , although cost inflation will keep rates higher than pre-pandemic levels .

Sharp spot increases

Shippers preparing to sit down with carriers to negotiate their long-term contract rates will have noticed — and

26 Journal of Commerce | November 18 , 2024 www . joc . com