Containers: uncertainty reigns as tariff turmoil and overcapacity looms

DISRUPTION and uncertainty have been synonymous with container shipping in recent years. So far, 2025 has seen more of the same — and, well, the only certainty at this stage is that this is unlikely to change through to December.

US trade policies under Trump 2.0 have dominated proceedings in the opening months of the year, with the industry, like everyone else, second- guessing the president and his administration’s next move in an unpredictable game of yo-yo tariffs being played out on the global stage.

Trump’s latest move at the time of writing (in mid-May) at least offered some respite, with the US and China announcing a 90-day reprieve on reciprocal tariffs, effective May 14, following talks in Geneva, Switzerland.

This followed a similar 90-day pause with other US trading partners on tariffs of more than 10% that befell countries on the Trump-coined “Liberation Day”.

While encouraging — and, of course, a significant de-escalation of the rhetoric in early April, when Trump was proudly waving an oversized placard on the White House lawn, pledging tariff payback — it is important to remember that no trade deals have been reached quite yet.

Given the erratic nature in how tariffs were initially implemented, there is still — and perhaps understandably — lingering uncertainty around what happens next.

In late April, prior to the US and China’s temporary pause on tariffs, London-based analyst’s Drewry forecast that box demand would fall into negative territory in 2025 for only the third time in the industry’s history as a direct consequence of US trade policies.

The only other times the industry saw traffic volumes slip back year on year since records began in 1979 was post-Covid in 2020 and in the fallout of the global financial crisis in 2009.

Of course, this projection hinged largely on a prolonged trade war and the prospect of a looming economic recession in the US.

With the US administration reversing court, choosing to review and potentially lessen the extent of current tariffs, this forecast is likely to be revised slightly upwards. Higher-than- expected container volume growth during the first quarter had also still to be accounted for.

However, as Drewry container research senior manager Simon Heaney stated at the time, any projections in today’s environment are on a “coin flip”. The pause on exorbitant reciprocal tariffs from the US and China, of course, does not guarantee a resolution come August.

Even if tariff agreements are reached that will not put global trade on the backfoot, container demand growth is still expected to be muted, at best.

And herein lies a major issue for the liner industry. For the tariff wars could become merely a sideshow from what potentially lies in wait for a sector fundamentally on the precipice.

While the global trade war has stolen the headlines, perhaps the most concerning issue is the prospect of container shipping overcapacity rearing its ugly head once more.

Last year marked the strongest growth level in the boxship fleet since 2008, with net fleet growth reaching 10.1%, according to Danish Ship Finance in its latest quarterly outlook for the sector.

During the first quarter of 2025, fleet growth advanced by a meagre 1.2% in what appeared to be a sign carriers were — for now, at least — limiting capacity additions.

However, the orders keep on coming. At the time of writing, Cosco and its subsidiary OOCL had just put pen to paper on a deal for a further 20 vessels.

“You hear reasons why carriers are individually going out and making these orders, but it seems pretty bonkers to me,” MSI director Daniel Richards stressed to Lloyd’s List.

“They’re still piling them [orders] on… the newbuilding boom is going to have to slow down at some point.”

As it stands, the newbuilding orderbook is currently hovering at around 30% of the total fleet on the water.

“This is colossal in an environment where annual growth, if you’re lucky, is a maximum 2.5%,” said Drewry managing director Tim Power.

Indeed, Drewry’s supply/demand index forecast — which, at 100 points, represents relatively strongly market fundamentals — is currently in the mid-80s.

However, in the second half of 2025, the projection is that this will begin to slide, falling to below 80 points next year — and then down to around 75 points thereafter, which is effectively an all-time low.

“The scary point,” as Power pointed out, is that this comes with the significant caveat that full-scale Red Sea sailings will not resume.

Trump’s recent claims of a potential ceasefire deal with the Houthis — while, as with many of his claims, can be taken with a pinch of salt — has, at the very least, heightened talk of a Red Sea return in the not too distant future.

With ships sailing back through the Suez, this would effectively release an additional 10% of latent capacity into the market. Until now, this capacity buffer has prevented any major freight rate erosion as carriers have released more tonnage into the market.

Its removal could prompt a whole world of trouble for the sector — and in this sense, from a carrier’s perspective, the incentive for a Red Sea return is low.

It is fair to say that carriers will be looking to delay this migration of tonnage back through the Suez for as long as possible — not just in respect of the safety of their crew and ships.

For carriers, however, despite the gravity of the supply situation on the horizon, this will be seen as tomorrow’s problem.

At the time of writing, the more immediate task for carriers following the temporary pullback on US-China tariffs is to ferry the mass of Chinese cargo bound for the US, which has been lying in wait until some form of trade truce was reached.

The issue facing carriers is how transpacific capacity has been pulled back significantly in response, including numerous blank sailings. Drawing that capacity back — whether in layup or now on other deepsea trades where possible — is no mean feat.

The fallout is an impromptu early and very short peak season on the transpacific, where carriers will be looking to move as much cargo as possible.

With capacity tight, given the scarcity of tonnage readily available on the trade, freight rates are expected to go through the roof and continue to do so as shippers rush through as much cargo as possible before the 90-day pause ends.

Elevating rates further will be the “inevitable congestion” at US ports amid this deluge

in cargo, according to Vespucci Maritime founder and chief executive Lars Jensen.

Although this spells yet more disruption for shippers, the carriers — despite the obvious operational headaches — will not care an iota.

“First we had the pandemic, then we had the ship [Ever Given] that got stuck in the Suez Canal... then we had the Red Sea, and now we got the Trump yo-yo in trade wars. All of these things cause vibrations, and that is profitable for the carriers.”

Carriers will certainly reap the rewards of the transpacific gold rush in the coming weeks, but come mid-August, if tariffs are reinstated after trade talks hit a wall, this will quickly become a distant memory and raise the prospect of a rapid US recession.

Liner shipping: it’s never dull.

This article is part of Lloyd’s List’s Half-Year Outlook 2025, which can be viewed here. A print edition will be distributed at Nor-Shipping in Oslo.

Lloyd's List Daily Briefing 19 May 2025

#Containers #MarketOutlooks #MidYearOutlook #MarketInsight #AsiaPacific #NorthAmerica #Drewry #DanishShipFinance #Cosco #OOCL