News / Box lines' return to Suez would open 'release valve' to overcapacity

Photo: VesselFinder

The container shipping market may appear robust, but “much of the current strength is borrowed”, and underlying fundamentals suggest a fragile outlook, warned Braemar analyst Jonathan Roach.

“Rates are firm, utilisation is tight, and sentiment is broadly constructive,” he said. “But dig a little deeper, and the picture is more complicated than the headline numbers suggest.

“And he cautioned that “much of the current strength is borrowed”. 

A key driver of the current strength is the continued rerouting of vessels from the Red Sea and Suez Canal, which has lengthened voyages and absorbed capacity that might otherwise be excess and weigh on the market.  

“That is propping the market up – but it is not a permanent fix,” Mr Roach said, warning that a faster-than-expected return to normal Suez transits could trigger a sudden capacity surge, which would be “a release valve opening, and the market would feel it quickly”. 

The Loadstar reported earlier this week that CMA CGM was doubling its Suez Canal transits as shippers were prepared to pay a premium to move cargo quicker, via the Red Sea – and Linerlytica suggested this may prompt its rivals to do the same.  

Mr Roach suggested that an “upside scenario” would be if disruption continued longer than expected, or if delivery schedules slipped. This way, the market would “stay tighter for longer”.  

And he said: “The downside is sharper.” More Suez Canal transits would release capacity back into the system, “accelerating the move into oversupply and compressing the timeline for the correction”. 

However, Peter Sand, chief analyst at Xeneta, told The Loadstar: “I think carriers eventually will get back to the Red Sea, but they are in no rush, for various reasons. 

“They have one sizeable disruption to handle currently, which is the Middle East, on top of all the others – Houthi rebels, Trump tariff wars, Russia’s invasion of Ukraine. There will only be a full scale return once they can see that this is a safe thing to do; this is a steady thing to do; and we can reset our networks the way they were – at least through Red Sea with Suez Canal transits as we saw them back in 2023.”  

And Mr Roach highlighted another “genuine counterweight worth watching”.  

He explained: “China is moving fast. Faced with higher US tariffs, it is pivoting hard to expand its export reach – South America, Africa, the Indian subcontinent, the Middle East. These are longer, more complex trade routes, and they consume more vessel capacity per unit of cargo moved.” 

This re-shaping of trade flows adds “real ton-mile demand to the system” and could “absorb more of the coming supply than many expect”, he added.

But even so, he believes demand growth will struggle to keep pace with supply. Global trade is forecast to expand just 2% to 4% annually, while a significant amount of newbuild tonnage is due to enter service between 2026 and 2028. 

“2026 still looks relatively firm; disruption and inefficiency are doing the work of keeping the market tight. 2027 is where the shift begins,” said Mr Roach

And by 2028, oversupply would no longer be a forecast, but “the reality”. This, in theory, means rates will come under pressure across most segments and idle tonnage builds. And he added that the exposure of oversupply was not equal across segments.  

While larger vessels, above 7,500 teu, will feel the turn first, “because they are the ones driving cascading into secondary markets”, vessels in the 4,000 to 7,500 teu range would be the most exposed, “squeezed from both ends” – displaced by larger ships above and pushed into feeder trades below. 

Feeders and regional vessels below 4,000 teu are “relatively more insulated”, supported by structural regional demand, said Mr Roach, but he warned that older tonnage in the segment would become “increasingly vulnerable as conditions deteriorate”. 

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