The Red Sea Dilemma: Container Shipping's Catch-22

CMA CGM's Benjamin Franklin transited the Suez Canal last week—at 17,859 TEU, the largest container vessel navigating the passage in nearly two years. For Suez Canal Authority Chairman Osama Rabie, the symbolic significance proved irresistible: proof that normalcy beckons following November's Sharm El-Sheikh Peace Summit and subsequent Houthi ceasefire declarations. Yet this singular transit, celebrated by Egyptian officials desperate to recover from 60% revenue collapse, illuminates an industry contradiction: carriers face a choice between two unsatisfactory alternatives, with profitability hanging precariously regardless which path they choose.

The arithmetic appears straightforward. Red Sea diversions around Cape of Good Hope absorbed approximately 9% global container capacity, adding seven-to-ten days transit time and thousands of nautical miles to Asia-Europe journeys. This capacity drain sent Asia-Europe rates soaring above $8,000 per forty-foot container during 2024 peaks, establishing elevated floor of $3,000-$5,000 even during seasonal lows. Restoring Suez routing theoretically releases 2 million TEU capacity back into markets, slashes voyage times, reduces fuel consumption, cuts emissions. Mediterranean ports like Barcelona and Tanger Med, enjoying windfall traffic increases exceeding 20% during crisis, would surrender volumes overnight. African refueling stops lose strategic relevance immediately. Shippers regain predictability. Everyone wins—except they don't.

Here's the contradiction: the very capacity release celebrated as restoring "normalcy" threatens triggering market catastrophe. Container shipping already confronts structural overcapacity despite two years of Cape diversions absorbing supply. Global fleet grew 10% during 2024—approximately 2.8 million TEU—with another 5.9% expansion totaling 1.9 million TEU delivered during 2025. Spot rates on Asia-Europe, Mediterranean, and US East Coast trades—precisely those routes benefiting from Suez restoration—have already collapsed over 50% since year's start. Xeneta's Peter Sand warns bluntly: "Carriers are already heading into loss-making territory and freight rates are expected to fall up to 25% globally in 2026, even with no change to the situation in the Red Sea."

Return to Suez doesn't merely inject capacity—it floods markets already drowning in tonnage. Xeneta calculates global TEU-mile demand would decrease 6% assuming large-scale Red Sea return during second half 2025, based on shortened routing reducing distance each container travels. The transition itself compounds disruption: vessel bunching at European ports, potential two-to-six month congestion cycles, schedule chaos as carriers simultaneously reconfigure networks. Initial congestion temporarily absorbs excess capacity, creating brief rate uplift, but once unwind completes, fundamental oversupply reasserts itself with vengeance.

Yet continuing Cape routing solves nothing. Longer voyages burn additional fuel, generate excess emissions precisely when regulatory pressures intensify around decarbonization commitments. Shippers endure extended transit times, reduced schedule reliability, elevated costs passed through supply chains ultimately landing on consumers. Insurance premiums remain elevated. Crew welfare suffers from protracted voyages. Egyptian economy hemorrhages $7 billion annually from lost Suez revenue, destabilizing critical regional partner. Environmental groups rightfully question why industry adds thousands of unnecessary nautical miles when shorter alternative exists.

Carrier responses reflect this strategic paralysis. Maersk acknowledges considering December return whilst simultaneously refusing to confirm timeline, emphasizing crew safety remains "highest priority"—diplomatic language masking financial calculation. Hapag-Lloyd's CEO Rolf Habben Jansen states flatly: "For the moment, I don't see us returning very soon." CMA CGM conducts tentative tests whilst CFO Ramon Fernandez projects full reopening perhaps during 2026. Each Ocean Alliance member makes independent assessments, ensuring market fragmentation where some carriers transit Suez whilst competitors maintain Cape routing—worst possible outcome combining route inconsistency with partial capacity injection.

The uncomfortable truth: Red Sea situation exposes container shipping's fundamental strategic vulnerability. Industry spent decade consolidating, ordering mega-vessels, pursuing economies of scale whilst simultaneously creating brittle system dependent on handful of critical chokepoints operating flawlessly. Suez represents 12-15% global goods trade; its closure revealed how quickly concentrated capacity overwhelms alternative routes. Yet reopening threatens collapsing rate structures propping up carrier finances during uniquely favorable conditions.

What's genuinely needed—aggressive capacity management, vessel scrapping, network discipline—remains commercially unpalatable given competitive dynamics and shareholder expectations shaped by 2024's windfall profits. So carriers equivocate, conducting symbolic transits whilst delaying meaningful commitments, hoping somehow situation resolves itself. It won't. Someone eventually returns to Suez. Rates collapse. Carriers slash capacity reactively rather than proactively. Shippers endure chaos. The cycle repeats. This isn't normalcy returning—it's an industry confronting consequences of strategic choices made long before first Houthi missile launched.