Photo courtesy CV International
Photo courtesy CV International
SUMMARY:
Recent years have been rough for ocean freight forecasting. This year is no exception. Just a few months into 2025, and the market is already shaping up to be one of the most unpredictable, and consequential, in decades.
The Red Sea crisis continues, now in its 16th month, causing container vessels to route around the Horn of Africa to avoid the path of Houthi rebel fire. Under current circumstances in the region, industry analysts believe that ocean carriers may attempt a service shift back to the Suez Canal during the fourth quarter of 2025 or later, whenever the passage is deemed safe.
When the shift occurs, after a period of severe port congestion, overcapacity will follow due to increased effective capacity from the shorter Suez transit, plus record new vessel deliveries expected this year. Carriers will need to employ various strategies to balance capacity with demand, including blank sailings and re-engaging in routine vessel scrapping.
Overcapacity is not a new issue for the industry, however. Constant U.S. tariff changes and potential hefty fees on Chinese-built ships are the real game-changers facing global ocean trade. This round of tariff policy adjustments is different due to the unprecedented pace. Shippers and trade professionals are working overtime to keep up with daily and hourly changes, often duplicating work in the meantime. Shippers who may wish to consider new sourcing locations are reluctant due to the uncertainty of which origin may be tariffed next.
In addition to tariffs, the Office of the U.S. Trade Representative (USTR) announced proposed action in February aimed at targeting China’s dominance in the shipbuilding sector. The proposal includes steep fees, up to $1.5 million per port call, on Chinese-built vessels that call U.S. ports, as well as fees on ocean carriers that have Chinese-built ships in their fleet. With much of the global container vessel fleet built in China, the proposed fees will have a significant impact on U.S. ocean freight, both imports and exports.
Ocean carriers are likely to eliminate smaller U.S. port calls in favor of consolidating cargo through the largest gateways to avoid extra port call fees. This will place tremendous pressure on port and inland infrastructure, and it is likely to result in congestion levels that eclipse those seen at the height of the pandemic-era supply chain crisis.
Further, smaller ocean carriers that operate smaller vessels will not be able to compete if the proposed fees are levied and will most likely be forced out of U.S. trade lanes, reducing ocean carrier competition for U.S. shippers. Importers will certainly feel the effects of the action through increased ocean freight rates and congestion. U.S. exporters will be significantly impacted as well, with far fewer routing and ocean carrier options and increased freight rates, making their products more expensive to potential buyers overseas.
These developments have created a new level of uncertainty for U.S. companies engaged in international ocean trade. Planning efficient supply chains is virtually impossible without some degree of confidence in the trading landscape. Combined with general U.S. economic uncertainty, U.S. shippers have a complex and constantly changing environment to navigate. We always highlight the importance of forecasting well in advance to achieve the most efficient networks. This year, we know forecasting is unrealistic for many companies.
Partnership, which we also emphasize, is more critical now than ever. Having trustworthy partners who can help navigate the constant changes and obstacles is invaluable, especially in a business environment where unpredictability is now the norm.
Rachel Shames is vice president of pricing and procurement at CV International, a freight forwarder, customs broker and non-vessel-operating common carrier headquartered in Norfolk.
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