Will the shipping companies make money this year? Every year for five years, Upply has tried to forecast whether or not the shipping companies would be profitable. Until now, our predictions have tended to be confirmed by reality, as registered 10 months later, at least in terms of the main trends.
Let us get out our crystal balls again, therefore, for 2025 and try to set out the different probabilities likely to influence trends, differentiating the stable, consensual factors from the other less stable ones, which can cause or ease market tensions.
The container transport sector is suffering from structural overcapacity, even if most of it is currently being absorbed by provisional use of the route round the Cape of Good Hope. The market is agreed nevertheless that overcapacity is a time bomb and the shipping companies are already preparing ways of softening the blow that a return to the Suez Canal would represent.
Shipping companies' operating costs have increased by around USD1,500/FEU since the start of hostilities in the Red Sea. This increase in costs, which is only partly reflected in the companies' accounts, is going to persist. We should, therefore, be wary of financial projections which are under-estimated because they are based on out-of-date cost evaluation methods.
New shipping alliances with new formats were launched in early 2025, which should stimulate competition as the shipping companies look to increase their market shares.
The economic context is still fragile, with weak growth in Europe and the outlook for household consumption in 2025 generally unfavourable because of the high risk of inflation on American retail sales.
Freight rate volatility and uncertainty have pushed environmental and climatic considerations into second place in decision-making procedures.
Even if the Strait of Hormuz is blocked or there are fresh developments regarding the Russian ghost fleet, access to fossil fuels should not be a problem, since the American continent, particularly the United States, will be able to guarantee that production is adequate.
The new US administration is determined to increase customs tariffs on imports into the United States. This can only reduce import volumes, at least initially. If this policy become a long-term phenomenon, the loss of cargo volume could become even more substantial, as the countries affected respond in kind.
MSC has temporarily withdrawn its biggest ships from services between Asia and northern Europe and replaced them with vessels of around 15,000 TEU. Will the other companies following the market leader's example? Even if such a realistic approach looks pertinent, the future of the mega-container ships remains a millstone around the sector's neck.
Following a Biden administration investigation which concluded that China was guilty of "acts, policies and practices" aimed at dominating the shipping, logistics and shipbuilding sectors, the office of the United States Trade Representative (USTR) recently recommended taxing Chinese-built ships calling in US ports but also shipping companies with at least one Chinese-built ship in their fleets or on order. In addition, a surcharge of USD1m per port call would be imposed on all Chinese-based shipping companies, including COSCO.
The USTR is currently consulting about its proposed measures. First estimates indicate that these measures would represent a surcharge of USD1,000-2,000 per 40' container coming into the United States. In addition, the impact of these measures would be concentrated on the biggest ports, creating a serious risk of congestion. Taxes of this kind could also exacerbate the retail price inflation created by the increase in customs tariffs.
In the United States, business operators are going to have to learn to live with an unstable regulatory environment, which will be subject to rapid changes in different directions. The administration's customs tariffs strategy, with measures announced and then postponed, is one example, as are the plans to tax Chinese ships and operators. It cannot be excluded either that other measures will emerge, which will also have repercussions for the container shipping industry. In Europe, the strategies of the shipping companies will need to be followed closely, as the exemption of liner shipping consortia from European Union competition regulations comes to an end.
There are currently international conflicts and geopolitical tensions on a number of fronts (Russia-Ukraine, Middle East, South China Sea). It remains to be seen, however, if more flashpoints will come into existence or if existing conflicts will escalate. The statements made by Donald Trump since he became president of the United States, particularly those concerning territorial expansion, have raised questions about the attitude that the United States would take if China invades Taiwan. At this point, it looks unlikely that the West will form a united front to come to Taiwan's rescue.
One of the aims of increasing customs tariffs is to encourage manufacturers and industrial groups to relocate to the United States. This would mean reconstituting and training a labour force, which barely exists any more. This will necessarily take time, which means that this effort, if it succeeds, will not lead to any substantial change in trade flows in the year ahead.
Taking all these factors into account, it looks as if it will be difficult for the shipping companies to repeat their unexpected financial exploit of last year. This exploit, moreover, was mainly the result of the situation created by the Houthis' attacks on shipping in the Red Sea. By disorganising the shipping companies' activities and forcing them to go round Africa via the Cape of Good Hope and thus increasing their costs, the Houthis' attacks caused an increase in freight rates just as they were getting dangerously close to the break-even point. The 2024 financial year was thus saved in a way that surpassed the hopes of the shipping companies themselves.
The Red Sea problem has not been settled but the initial shock caused by the Houthi attacks has dissipated. The new routes are now tried and tested and, although new tensions in the area are probable this year, they will not have the same impact on freight rates as last year.
A return to intense competition and lower cargo volumes on east-west routes are probable, however. Without massive, wide-ranging withdrawals of mega-container ships, therefore, shipping companies' profit margins should be reduced.
On this basis and supposing that their ships continue to go round the Cape of Good Hope, we think that shipping companies will just about break even. If there is a large-scale return of traffic to the Suez Canal in the second half of the year, however, the shipping companies which are less well able to control their costs could find themselves in the red this year.
The companies which do best in 2025 could well be those which are most active in the Indo-Pacific region, a market segment in which they operate smaller vessels (under 10,000 TEU). It is clearly there that the shipping companies are going to be able to find some war booty this year rather than on the overcrowded east-west "motorways". Will small be beautiful, therefore, in 2025? At this stage, this is the most likely scenario, as far as I am concerned.