Heads or tails? Container shipping facing rates, demand and overcapacity pressures

The outbreak of conflict in the Middle East and the resulting disruption to regional maritime trade routes triggered initial volatility across global container shipping. In the weeks that followed, carriers moved quickly to announce additional charges, hoping the shock would tighten capacity and support higher pricing. Spot rates have been falling on some trades as demand deteriorated, although now stabilising as the traditional peak season approaches and carriers are shifting to active capacity management to prevent a more damaging decline. The picture is more complex, and more concerning, than a simple disruption narrative might suggest though.

Rates: The rally that wasn’t

Following the initial outbreak of conflict, spot rates edged upward for approximately six weeks, broadly coinciding with heightened geopolitical risk and uncertainty affecting key transit corridors. Carriers sought to capitalise, announcing emergency surcharges, fuel levies and general rate increases (GRI) scheduled for April and May.

Those increases have not held. The World Container Index has now declined for the first time since the conflict began, with Asia–Europe routes leading the fall although now appearing to stabilise. On the Asia–North Europe corridor, rates have largely returned to pre‑conflict levels, while Asia–Mediterranean rates remain well below advertised levels. In many cases, shippers are paying $1,000 or more per FEU less than the shipping companies initially indicated.

The picture is uneven by route. Disruption and elevated security risk in the Middle East have complicated access to certain Gulf ports, including Jebel Ali, with carriers choosing alternative routings and landbridge options. Rates from China to the UAE have risen sharply, reflecting higher fuel, insurance and operational costs associated with longer or less efficient routings. The disruption, however, remains largely localised: the Middle East accounts for only a small share of global container port throughput. On the main east-west routes for global trade volumes, carriers are finding their pricing power significantly constrained.

Bunker prices have risen sharply since the conflict began amid concerns over availability and supply in some ports, with carriers passing much of the increase to shippers through fuel surcharges. According to market analysts, those surcharges account for much of the rate rises seen in recent weeks, rather than any genuine recovery in demand. Speculation over the potential introduction of additional transit charges in the region adds a further layer of cost uncertainty, equivalent to several hundred dollars per FEU on a round voyage. This uncertainty compounds disruption already caused by earlier security incidents affecting shipping in the Red Sea region. The potential for future incidents, along with structural capacity oversupply continue to support liner networks to route via the Cape of Good Hope and away from cost‑optimised routing towards more risk‑managed and resilience‑focused operations, a shift that any potential additional cost or regulatory burden would only accelerate.

Demand: The central problem

Part of the reason the market has not responded as carriers hoped lies in the demand picture. European importers of Asian goods are pulling back, with reports that some retailers are slowing orders and adopting a wait‑and‑see approach as economic uncertainty created by the conflict makes forward planning increasingly difficult. Freight forwarders on the Asia–Europe trade report little difficulty securing space or equipment, a telling sign that vessels are not being filled.

The comparison with the pandemic, which would ordinarily be the most relevant reference point for a disruption of this scale, is instructive but limited. During Covid, a sharp and unexpected surge in demand driven by consumers shifting spending from services to goods, collided with severely disrupted shipping operations, squeezing effective capacity and producing an extraordinary and sustained rate spike. Today the circumstances are almost precisely reversed: demand is soft, capacity is abundant, and the broader economic environment is deteriorating. Unlike Covid, the current conflict carries a meaningful downside risk to demand rather than an upside one, and supply constraints are considerably less severe, with a steady flow of newbuildings continuing to enter the market. The assumption that disruption automatically benefits carriers does not hold in this context.

Growing overcapacity on Asia–Europe

The structural capacity position on Asia–Europe routes has worsened considerably in recent weeks. New service launches and alliance redeployments have added further tonnage to an already well‑supplied lane. Analysts have warned that vessel utilisation could fall to loss‑making levels unless carriers take meaningful action.

Not all carriers are retreating from higher‑risk regions. Some continue to increase transits via the Suez Canal, with shippers prepared to pay a premium for a faster routing compared with longer alternatives. The move underlines the delicate security assessment facing carriers, with routing decisions increasingly tailored by direction, risk profile and cargo sensitivity rather than a single network‑wide approach.

The challenge is that the scale of adjustment required is significant. Even accounting for blank sailings, analysts caution that withdrawal efforts are likely to fall short if demand continues to soften alongside supply reductions. By late April, Asia–Europe spot rates had largely returned to pre‑conflict levels, with carriers’ ability to push further increases increasingly limited.

Carriers take defensive action

Rather than pushing for rate increases, carriers have shifted focus to preventing rates from falling freely. Capacity reductions and blank sailings have been deployed to manage supply, particularly ahead of recent transpacific annual service contract negotiations. Planned general rate increases for early May have largely been abandoned, with some carriers extending current pricing into mid‑May (or further) pending clearer demand signals.

One practical consequence of transpacific blank sailings has been a rise in schedule unreliability. It is important to note that this reflects carrier‑led supply withdrawal rather than any underlying strengthening of demand. Rolled bookings have increased, and in some cases scheduled sailings have been withdrawn at short notice.

The broader economic picture

The disruption is occurring against a deteriorating global economic backdrop. International institutions have revised down global growth forecasts, with downside scenarios increasingly centred on the risk of prolonged energy and transport disruption emanating from the Middle East region. Should instability persist and translate into sustained higher energy costs, the drag on global growth—and on containerised trade volumes—could intensify materially. Against the backdrop of such geopolitical and macroeconomic uncertainty, the importance of concluding effective, legally binding yet flexible freight agreements has never been greater. Now more than ever, the case for taking qualified legal advice, as well as commercial guidance, is clear and compelling.

Harry Norbury, Trainee Solicitor, assisted in the preparation of this briefing.