News / Geopolitics now trumps supply and demand in box shipping, says KOBC

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Geopolitics will have a greater impact on container shipping in the foreseeable future, than pure cargo supply and demand, according to the Korea Ocean Business Corp (KOBC).

The ship finance institution’s report says that, in response, shipping lines are moving towards a system “focused on supply chain stability and flexible networks”.

It noted that in November 2023, as the Red Sea crisis and geopolitical tensions in the Middle East continued, shipping lines became less focused on cost efficiency, more on maintaining cargo flows and port calls, even if it meant longer sailing distances.

For example, Asia-Europe routes, originally centred on Suez Canal transits, had structurally changed since Houthi rebels began attacking merchant ships, and began detouring round the Cape of Good Hope. This soaked up a significant number of newbuildings.

The KOBC report said: “As a result, despite the delivery of large ships, the oversupply feared by the market has not materialised, and freight calculations are shifting from simple supply and demand to a structure influenced by a complex mix of geopolitical risks, transport distances, and network operation methods.”

Before the Red Sea crisis, freight rates on the Asia-Europe route alone could largely explain overall market trends, but after geopolitical risks expanded, freight rates on various routes were independently influenced, significantly weakening market synchronisation.

And KOBC also observed that liner operator strategies were changing.

In the past, economies of scale and cost reduction were the main competitive factors, but now, flexible network planning, using multiple routes and service continuity – such as the hub-and-spoke strategies of the Gemini Cooperation and HMM – have emerged as key competitive factors. Meanwhile, MSC has shifted to an “optionality” strategy to secure multiple routes.

KOBC said: “These changes aren’t temporary but are likely to establish a new operational environment for the global container market, going forward. Future market analyses will need to examine both geopolitical variables and shipping companies’ response strategies.”