As spot rates on the U.S. trade lane continue to decline, Xeneta analysts predict that the average long-term contract rates on this route will drop to pre-Red Sea crisis levels in the coming months, marking another significant milestone.
Xeneta analysts note that the Red Sea crisis in December 2023 was a major turning point for the container shipping market, causing a sharp surge in average spot rates on key trade lanes.
Xeneta data shows that since peaking in July 2024, the average spot rates on the U.S. trade lane have generally trended downward, plummeting another 59% since June 1 this year and now reaching their lowest level since December 31, 2023.
This raises the question—will U.S. trade lane spot rates continue to fall? And if so, will they drop to pre-Red Sea crisis levels?
In reality, the U.S. trade lane, particularly the U.S. West Coast route, was not directly impacted operationally by the Red Sea crisis, as it does not pass through the Suez Canal. However, during the post-Red Sea crisis market surge in 2024, the U.S. West Coast route saw a larger rate increase compared to the U.S. East Coast route.
The answer lies in capacity supply. In early 2024, most vessels began avoiding the Red Sea and rerouting via the Cape of Good Hope. The longer voyage distances absorbed capacity, and liner companies responded by shifting capacity from the U.S. trade lane to routes affected by the crisis.
In March 2024, the deployed capacity on the U.S. trade lane fell to its lowest level since July 2023, at 218,000 TEU.
The drop in capacity coincided with shippers frontloading imports to protect their supply chains from the Red Sea crisis, leading to a surge in average spot rates in April, May, and June 2024. Liner companies then responded to rising rates by redeploying capacity back to the U.S. trade lane, causing average spot rates to peak in early July 2024.
It was no coincidence that the average spot rate on the U.S. trade lane peaked at $8,203/FEU on July 5, 2024. At the same time, deployed capacity on the route also reached a peak of 341,000 TEU on July 8 (still the highest level in the history of U.S. trade lane capacity).
In short, the balance of supply and demand is the key determinant of container shipping rate trends.
Why are rates falling?
On the capacity side, this represents the flip side of the coin. In early April, the “Liberation Day” tariffs imposed by Trump caused a sharp decline in container shipping demand, and by the week of May 12, capacity on the U.S. trade lane had dropped to 241,000 TEU.
Notably, even 241,000 TEU was higher than the actual capacity of 218,000 TEU on the route in March 2024.
When Trump subsequently announced a tariff suspension on May 12, it triggered a “rush to ship,” but at this point, liner companies were already withdrawing capacity from the U.S. trade lane following “Liberation Day.”
The logic here is largely the same as during the 2024 rate surge. After the announcement of a 90-day tariff suspension, cargo volumes spiked, while capacity dropped significantly, leading to a 75% increase in the U.S. trade lane’s average spot rate by June compared to May 31.
Xeneta data shows that liner companies responded to the June rate surge by redeploying capacity back to the U.S. trade lane, but redeployment takes time. By June 30, average capacity on the route had reached 335,000 TEU.
However, the post-tariff suspension “rush to ship” was short-lived. Retailer inventories had already increased, and shippers were reducing shipments. Meanwhile, despite slowing demand, deployed capacity remained high, leading to a sharp drop in the U.S. trade lane’s average spot rate since June 1.
Will the average spot rate on the U.S. trade lane fall to pre-Red Sea crisis levels?
Xeneta analysts say the answer largely depends on how liner companies manage capacity.
Currently, the average spot rate on the U.S. trade lane is $2,274/FEU, approaching the pre-Red Sea crisis level of $1,643/FEU, compared to the post-crisis peak of $8,023/FEU on July 5 last year.
If liner companies do not further reduce capacity on the U.S. trade lane from the current 337,000 TEU, and given that container shipping demand on the route is likely to remain weak for the rest of the year, the average spot rate could very well drop to pre-Red Sea crisis levels.
Of course, liner companies will not sit idly by as rates plummet. In fact, there have been many successful capacity management cases in the past.
Xeneta analysts point out, however, that capacity management could also trigger potential ripple effects across the global container shipping market. If liner companies prioritize maintaining critical U.S. trade lane rates, they may succeed in keeping rates above pre-Red Sea crisis levels. But if they consider redeploying some capacity to other routes, such as the transatlantic or Far East to East Coast South America routes, rates on those routes could come under pressure.
The challenge of overcapacity in the container shipping market
In reality, reducing capacity to keep spot rates rising is simple in theory but difficult in practice, especially given the significant growth of the global container fleet in recent years.
Xeneta data shows that, based on a 2019 index baseline of 100, the global container fleet size now stands at 145. Meanwhile, global container shipping demand has only increased from a baseline of 100 to 113.
Even accounting for the impact of rerouting via the Cape of Good Hope, demand measured in TEU-nautical miles has only risen to 130, far below capacity growth.
Against the backdrop of severe overcapacity in the global container fleet, liner companies face significant challenges in preventing further rate declines.
In fact, for the container shipping industry, a return to Red Sea transit in 2025 is unlikely. If this happens, the challenges liner companies face in capacity management will grow exponentially.
Xeneta analysts note that it is worth pointing out that, compared to the overall increase in import costs due to U.S. tariffs, the cost savings shippers achieve from lower rates are much smaller.
However, setting tariffs aside, even if U.S. trade lane spot rates do not fall all the way to pre-Red Sea crisis levels, shippers’ negotiating position is much stronger than in July last year.
Xeneta analysts emphasize that while shippers may have gained some bargaining power, they still need to proceed with caution.
U.S. trade lane long-term contract rates will fall to pre-Red Sea crisis levels
Xeneta data shows that the average long-term contract rate on the U.S. trade lane is also declining and is now only slightly 5% higher than pre-Red Sea crisis levels.
Xeneta Chief Analyst Peter Sand predicts that in the coming months, the average long-term contract rate on the U.S. trade lane will drop to pre-Red Sea crisis levels, marking an important milestone.
However, he notes that if long-term contract rates on the U.S. trade lane fall to pre-crisis levels, liner companies facing losses may respond with stricter capacity management.
This stricter capacity management, combined with potential demand recovery, could also exert upward pressure on long-term contract rates again by year-end, which may become a key factor in 2026 contract negotiations.
