KEY TAKEAWAYS
- Spot rates back to pre-crisis levels: SCFI Shanghai–U.S. West Coast has fallen to $1,460/FEU, the lowest since July 2023.
- Four spikes, one collapse: From the Red Sea crisis to the Trump election, each surge proved short-lived.
- Profits in freefall: Q2 2025 earnings plunged –56% QoQ to $4.4B, with Q3 projected below $2.5B vs. $26.4B at the peak.
- Record oversupply: Global orderbook has reached 9.9M TEU (31.6% of fleet)—a “capacity tsunami” looms from 2027 onward.
- Weak demand & policy shocks: U.S. import volumes set to drop –5.6% in 2025, tariffs creating ripple effects across global lanes.
- Structural headwinds: Minimal scrapping, rising environmental compliance costs (IMO Net-Zero), and declining Suez transit amplify stress.
- 2026 scenarios:
- Optimistic: disciplined capacity cuts.
- Pessimistic: prolonged price war fueled by pandemic cash reserves.
- Most likely: gradual rebalancing with persistent volatility.
The container shipping industry finds itself trapped in an uncomfortable déjà vu. Spot rates have tumbled to levels not witnessed since before Houthi attacks transformed the Red Sea into a no-go zone, yet the underlying fundamentals appear considerably worse than they were in late 2023. The Shanghai Containerized Freight Index (SCFI) for Shanghai–U.S. West Coast routes has plummeted to just $1,460 per forty-foot equivalent unit (FEU), marking the lowest point since July 2023.
This dramatic reversal exposes the fragile nature of container shipping rates and raises uncomfortable questions about whether the industry learned anything from its previous brush with financial disaster. The current market conditions mirror those that prompted Maersk CEO Vincent Clerc to announce 10,000 layoffs in November 2023, warning of “significant further downside risk potential” and scenarios where the company would “start to be cash negative.”
Four spikes and a spectacular fall
The past two years have witnessed four distinct rate spikes, each followed by inevitable declines that brought the market closer to its current predicament. The first surge emerged from the Red Sea crisis in late 2023 and early 2024, as vessels diverted around the Cape of Good Hope. The second and most dramatic spike occurred during summer 2024, when route diversions coincided with peak season demand, pushing rates to the second-highest levels in container shipping history.
A third spike materialized in late 2024 following Donald Trump’s election victory, as importers rushed to front-load shipments ahead of anticipated tariff increases. The fourth and final surge came in May–June 2025, driven by temporary reprieve on China tariffs. Each spike proved ephemeral, and container shipping rates now sit precisely where they were before the initial Red Sea crisis disruption.
The Asia–Europe trades tell an equally sobering story. SCFI Shanghai–North Europe rates have fallen to $1,942 per FEU, while Shanghai–Mediterranean assessments dropped to $2,970 per FEU—both representing declines to December 2023 levels. Drewry’s World Container Index paints a similar picture, with Shanghai–Los Angeles rates at $2,311 per FEU, just $24 higher than November 2023 levels.
Financial carnage accelerates
The financial implications of this rate collapse have materialized with brutal efficiency. Container shipping industry profits plummeted 56% sequentially to $4.4 billion in the second quarter of 2025, down from $9.9 billion in Q1 and representing a staggering 63.7% year-over-year decline from Q2 2024’s $12 billion. This marks the third consecutive quarter of declining earnings, with maritime analyst John McCown projecting Q3 profits between $1.9 billion and $2.5 billion—a fraction of the $26.4 billion recorded during the Red Sea crisis peak.
The volume picture provides little comfort. U.S. inbound container volumes dropped 3.6% for the three months ending July 2025, with the National Retail Federation projecting a 5.6% decline for the full year. McCown calculates this translates to the remaining five months of 2025 being down 17.5%—a decline he attributes entirely to tariff policies. Given that U.S. lanes represent approximately one-third of worldwide container miles, these disruptions create ripple effects throughout the global shipping network.
Individual carriers maintain substantial liquidity reserves, though these have diminished from pandemic peaks. Maersk’s total liquidity stood at $24.7 billion at the end of Q2 2025, down 8% from $26.8 billion in Q3 2023. Hapag-Lloyd has rebuilt its reserves to $7.1 billion after distributing a massive $12.2 billion dividend in 2023. These war chests could prove problematic if carriers prioritize market share over profitability during the coming downturn.
The capacity paradox deepens
While the financial numbers reveal mounting pressure on profits, the capacity picture exposes why this crisis will not be short-lived.
Perhaps most perplexing is the industry’s continued ordering spree despite deteriorating market conditions. The global container ship orderbook has reached an unprecedented 9.8–10.4 million TEU, representing an all-time high. Alphaliner reports the orderbook at 9.95 million TEU, meaning any significant new order will surpass the 10 million TEU milestone. The orderbook-to-fleet ratio now stands at 31.6%, compared to 27.5% in 2023.
This expansion reflects both fleet modernization and the industry’s apparent amnesia regarding supply-demand fundamentals. Since mid-2024, carriers and non-operating owners have added nearly 600 newbuildings, equivalent to a net orderbook addition of approximately 2.8 million TEU. With the global fleet averaging 13.7 years in age, carriers justify these orders as necessary replacements for aging tonnage.
The delivery schedule offers temporary respite before unleashing a capacity tsunami. Newbuilding deliveries will decline from 2.1 million TEU in 2025 to 1.7 million TEU in 2026, providing brief relief. However, deliveries will surge to 2.8 million TEU in 2027 and 3.5 million TEU in 2028, entering a market already struggling with overcapacity.
Meanwhile, capacity management metrics have deteriorated significantly. The global idle container fleet remains at just 0.5% of total capacity, compared to 3.3% in 2023. Scrapping activity has virtually disappeared, with only 6,900 TEU recycled in the first half of 2025 versus 79,200 TEU in the same period of 2023. The industry operates at what Alphaliner terms “full employment,” yet container shipping rates continue their relentless decline.
Structural headwinds intensify
The overcapacity crisis unfolds against a backdrop of deteriorating trade fundamentals that compound the industry’s woes.
Beyond cyclical pressures, structural factors compound the industry’s challenges. The United Nations Conference on Trade and Development (UNCTAD) projects maritime trade growth will slow to just 0.5% in 2025, down from 2.2% in 2024. Vessel rerouting around the Cape of Good Hope pushed ton-miles up by a record 6% in 2024, nearly three times faster than trade volume growth. By May 2025, tonnage through the Suez Canal remained 70% below 2023 levels.
Container shipping rates face additional pressure from new U.S. tariffs and port fees for vessels built in China or operated by Chinese carriers, effective October 2025. These measures particularly threaten the critical Asia–West Coast lane, where COSCO holds the highest market share. The combination of reduced volumes and increased compliance costs creates a perfect storm for container shipping rates.
Environmental regulations add another layer of complexity. Shipping’s greenhouse gas emissions rose 5% in 2024, yet only 8% of the world fleet’s tonnage can use alternative fuels. The International Maritime Organization’s Net-Zero Framework, under consideration for October 2025 adoption, would introduce a global fuel standard and carbon pricing mechanism.
Three scenarios emerge for 2026:
- The optimistic case sees carriers finally embrace capacity discipline through scrapping, idling, and charter non-renewals.
- The pessimistic scenario involves a prolonged price war funded by pandemic-era cash reserves.
- The most likely outcome combines elements of both: gradual market rebalancing punctuated by periodic rate volatility.
UNCTAD projects medium-term growth between 2026–2030 at an annual average of 2% for total seaborne trade and 2.3% for containerized trade. This modest expansion must absorb the incoming capacity surge while container shipping rates remain under pressure from structural overcapacity.
The industry’s salvation may require external intervention—another geopolitical crisis, unexpected demand surge, or regulatory shock. Absent such developments, container shipping rates face continued pressure as fundamental supply-demand imbalances persist. The question is not whether rates will recover, but whether carriers possess the discipline to manage capacity before their liquidity reserves evaporate.
The container shipping industry has weathered storms before, but rarely has it faced such a combination of overcapacity, declining demand, and structural headwinds simultaneously. The next 18 months will determine whether lessons from previous downturns translate into sustainable business practices or whether the industry remains trapped in its boom-bust cycle.