Ocean shipping rates have surged in recent months due to several factors, including the diversion of container ships from the Red Sea, a surge in early orders, and unfavorable weather conditions. These factors combined to double or even triple shipping prices. However, according to maritime research firm Drewry, rates have slightly decreased in recent weeks, and the introduction of new ships is expected to help stabilize the market in the long term.
During the early stages of the pandemic, global supply chains were overwhelmed as people ordered large quantities of goods. This led to significant port congestion, delayed deliveries, and an eightfold increase in shipping rates. It was a profitable time for the shipping industry.
“The ocean shipping lines made more money than they ever could have dreamed of before the pandemic,” said Tim Denoyer, a senior analyst at ACT Research.
In 2022, shipping giant Maersk reported a record revenue of $81.5 billion, with net income rising from around $5 billion in 2019 to nearly $31 billion in 2022. The industry used these profits to place substantial orders for new ships.
“The ocean carriers have huge orderbooks of new ships,” said Ryan Petersen, CEO of logistics company Flexport. “These orders were placed during the COVID boom years when they made so much money, and they reinvested it in new ships and increased cargo capacity.”
Building new ships takes about two and a half years, and while these orders were being fulfilled, the freight industry shifted from boom to bust. After 2022, consumer demand decreased, as did the need for new orders from retailers who had excess inventory.
Data from Freightos shows that the cost of shipping a container plummeted from a peak of $11,000 to around $1,000 toward the end of last year. Profits declined sharply, leading to what some called “the Great Freight Recession.” Despite this, the ordered ships continued to be built and delivered.
“A record amount of shipping capacity was added in 2023,” said Petersen. “And as these ships started sailing, it seemed like the world was getting way more ships than it needed.”
However, the oversupply of ships was mitigated by several issues. The Panama Canal lowered its water levels due to drought, forcing ships to offload cargo. The Israel-Hamas conflict spilled into the Red Sea, causing shippers to avoid the Suez Canal. Additionally, retailers rushed to get holiday orders shipped early, leading to a demand for more ships and more time.
As a result, the weighted average cost of shipping a 40-foot container increased from $1,400 at the beginning of the year to nearly $6,000, according to Drewry. The key question now is how long these elevated rates will last.
“If this is a long-term situation, they might decide, ‘Yes, we need extra capacity,’” said Jean-Paul Rodrigue, a professor of maritime business administration at Texas A&M Galveston.
In response to the current situation, container ship owner Danaos Corporation recently announced orders for five new container ships, expected to be delivered in 2027 and 2028. Meanwhile, other ships ordered years ago are still being delivered, adding to the supply while demand remains uncertain.
It appears that shipping rates may decrease in 2025, and the ocean freight industry could be heading for a bust year. As Petersen from Flexport noted, this is typical for the industry.
“The ocean freight industry is inherently a boom-and-bust industry because the assets last for like 30 years,” he said. “You buy one of these ships, and it has a really long life cycle.”
Given the long life of these ships, predicting trade patterns over the course of 30 years, let alone six months, is challenging.
