Red Sea return could prompt rate slump

The ceasefire between the US and Houthi rebels in Yemen could significantly reduce global freight rates, according to analysts.

US President Donald Trump claimed in early May that bombing raids on Houthi sites had forced the rebels’ leaders to agree not to attack shipping in the Red Sea. Later Oman’s foreign minister, Badr al-Busaidi, is reported to have said: ‘Neither side will target the other … ensuring freedom of navigation and the smooth flow of international commercial shipping in the Red Sea.’ Oman has been mediating contacts between the US and Houthis.

Red Sea return?

In response, Xeneta, the ocean and air freight intelligence platform, said an end to the  bombing brought the prospect of a large-scale return of container ships to the Red Sea, flooding the market with shipping capacity and cutting freight rates. Xeneta’s data suggests global TEU-mile demand would decrease 6% if container ships reverted to the Red Sea and the Suez Canal instead of tracking around the Cape of Good Hope.

Peter Sand, Xeneta’s chief analyst, says: ‘Of all the geo-political disruptions impacting ocean container shipping in 2025, conflict in the Red Sea continues to cast the longest shadow, so any meaningful return to the region would have massive consequences.’

The analysts say average spot rates from the Far East to North Europe and Mediterranean are between 39% and 68% compared to December 2023, before the Red Sea crisis flared up. Similarly, those from the Far East to US East Coast and US West Coast, have increased 49% and 59% respectively.

Capacity growth

Sand adds: ‘Carriers have capacity management strategies to keep rates elevated, such as blanking sailings when demand falls. But the amount of capacity that will flood the market following a return to the Red Sea, combined with a downturn in global container demand due to tariffs and high deliveries of new vessels, would require capacity management at an altogether different order of magnitude … to stop freight rates falling to a level that puts carriers in a loss-making position.’