Commercial shipping may resume through the Suez Canal by late February, depending on whether the conditions outlined in the ceasefire agreement between Israel and Hamas are met. Attacks on commercial vessels by Houthi militia have disrupted global shipping, forcing diversions to the longer and more costly journeys around the Cape of Good Hope for the past 14 months.

Lars Jensen, CEO of Vespucci Maritime, said that the best-case scenario requires three phases of the deal to be met. First, maintaining a six-week ceasefire, which starts January 19, second, the complete withdrawal of Israeli troops from Gaza, and third, a rebuilding plan for the territory. It is too early to tell when the Red Sea journeys would resume because shipping lines would want clear signs of safety, including an end to Houthi attacks on merchant vessels.

A reopened Suez route could restore 6 – 8% of container shipping capacity, according to S&P Global Market Intelligence. Meanwhile, close to 24% of new global capacity is set to launch over the next three years. BIMCO estimates an average of 1.9 million TEUs in capacity will be delivered annually from 2025 to 2028, peaking at 2.2 million TEUs in 2027, consequently raising overcapacity concerns.

According to Peter Sand, Xeneta’s chief analyst, once carriers return to the shorter Suez route, 2 million TEUs of container shipping capacity will become unnecessary and capacity management strategies alone will not be adequate. He expects carriers to use measures such as large-scale lay-ups, demolition, and re-deployments. However, Sand warned these steps would not prevent rates from dropping. “But none of it, alone or in total, will prevent freight rates from falling to levels seen in early Q4 2023. The question is how fast that will be,” he said, adding that operational challenges could keep rates volatile for one to two months.

Source: Journal of Commerce