/Reuters Agency
A drop in demand for maritime transport since US President Donald Trump imposed a series of new tariffs on trade partners earlier this year has contributed to ocean container rates reaching their lowest level since January 2024, putting the profits of major shipping lines like Maersk and Hapag-Lloyd at risk.
The Drewry World Container Index (WCI), which monitors the spot rate outside of a contract for moving a 40-foot cargo container on major maritime routes, fell to an approximately 20-month low, settling at $1,669 per 40-foot container.
The rate for the route between Shanghai and Los Angeles, the busiest in container trade, fell 58% compared to the previous year, settling at $2,196, according to Drewry.
Both rates are below the profitability threshold of $2,200 that major shipping lines like Maersk and Hapag-Lloyd need to make a profit, according to Jefferies shipping analyst Omar Nokta.
“Rates have fallen below the break-even point for higher-cost operators for the first time since late 2023,” Nokta said.
Maersk declined to comment on its break-even rates. Hapag-Lloyd did not immediately respond.
Approximately 50% of container cargo moves in the spot market. That percentage can increase when spot rates fall far below those contractual rates negotiated by customers.
“Currently, with the fall in spot rates, the gap is narrowing on the main East-West routes,” said Hind Chitty, senior manager at Drewry Supply Chain Advisors.
Meanwhile, the spot rate for the Shanghai-New York route has fallen 46%, settling at $3,200, according to Drewry data.
Shipping is a closely watched economic barometer, as around 80% of global trade is carried out by sea. The United States is the largest importer of containerized goods.
Major retailers like Walmart, Target, and Home Depot brought forward their imports of Christmas products to avoid the tariffs imposed by Trump, which caused an early “peak season” and reduced prospects for the rest of the year.
Some industry experts fear that retailers – who account for about half of the total container cargo volume – will reduce their future shipments due to tariff-driven inflation, which could put further downward pressure on rates.
Compounding the risk, major shipping lines like Mediterranean Shipping Company (MSC), Maersk, Hapag-Lloyd, and Cosco Shipping are receiving new container ships, adding capacity to an already saturated market.
The supply chain advisor Sea-Intelligence warned that the industry is approaching a cyclical overcapacity that is projected to peak in 2027, at levels similar to 2016, when shipping lines cut prices to attract customers.
“A weakened US economy plus an oversupply at sea? It’s the perfect recipe for brutal rate wars, idle tonnage, and shipping lines trying to plug financial holes,” said Jon Monroe, an industry executive turned consultant.
“The question is not if the storm will come, but how strong it will be,” he concluded.
Shipping companies were recording losses in the third and fourth quarters of 2023, before a series of attacks by Yemen’s Houthis on vessels in the Red Sea forced significant route diversions, which absorbed capacity and raised rates to profitable levels, according to Peter Sand, chief analyst at the pricing platform Xeneta.
Currently, rates from the Far East to the US East and West Coasts are approaching pre-Red Sea crisis levels, Sand indicated.
Shipping companies are attempting to manage capacity and protect their profit margins by omitting port calls, reducing speed or leaving ships idle, canceling voyages, and scrapping older vessels, according to experts.
Even so, Jefferies analyst Nokta expects the fourth quarter of this year to be the weakest since 2023. “Conditions are now turning in favor of shippers when they negotiate the next container shipping contract,” Sand stated.
