March 11, 2025
The Red Sea is an important waterway connecting the Mediterranean and the Indian Ocean. After the resumption of navigation, the capacity and freight rates will be affected by many factors and change accordingly.
Capacity changes
Short-term rapid recovery: During the period when the Red Sea route was blocked, many ships were forced to detour around the Cape of Good Hope, resulting in a significant increase in transportation time. After the resumption of navigation, a large number of ships that originally detoured will quickly return to the Red Sea route, causing the capacity of this route to recover rapidly in the short term. For example, some large container ships and tankers will re-select the shorter Red Sea route, thereby increasing the transportation capacity of the Red Sea route.
Long-term stable growth: In the long run, the resumption of navigation in the Red Sea will help stabilize the global supply chain and enhance market confidence. Trade activities will become more active due to the convenience of transportation, prompting shipping companies to increase their investment in this route, such as ordering new ships, increasing the frequency of flights, etc., further promoting the stable growth of capacity.
Freight rate changes
Short-term sharp decline: When the Red Sea resumes navigation, the shipping capacity increases rapidly, while the demand for cargo transportation is relatively stable in the short term. According to the principle of supply and demand, the supply of transportation services in the market exceeds the demand, and freight rates will drop sharply. Taking container transportation as an example, the sharp increase in freight rates caused by detours will be alleviated and return to a relatively reasonable level.
Long-term stabilization: As the market gradually adapts to the new transportation pattern, freight rates will be affected by a combination of factors, including fuel prices, operating costs, market competition, etc. In the long run, freight rates will fluctuate in a relatively stable range, neither too high as during the detour period, nor indefinitely reduced.
