Insight Focus
Container freight rates have hit a historic low. This slump has been caused by a decline in ocean shipping demand following US President Donald Trump’s imposition of a series of new tariffs on trade partners earlier this year. Among other factors, this sharp decrease in rates threatens the revenue and profits of major ocean carriers such as Denmark’s Maersk, China’s COSCO and Swiss/Italian MSC.
Freight Indexes on Downward Trend
All the key freight rate indexes are showing a consistent decline, with analysts expecting even worse conditions ahead. In particular, the fourth quarter of the year is projected to be the weakest since 2023, according to Jefferies’ ocean shipping analyst Omar Nokta.
Source: Drewry
The Drewry World Container Index (WCI), the global benchmark for index-linked contracts, has fallen to USD 1,669 per 40-foot container (FEU) on October 2, marking the 16th consecutive weekly decline and reaching the lowest level since January 2024.
Meanwhile, spot rates from Shanghai to Los Angeles have decreased by 63% since June to USD 2,196/FEU box, and those from Shanghai to New York have fallen 56% to USD 3,200/FEU during the period.
Source: Drewry
Asia–Europe spot rates are also trending downward, declining for 10 consecutive weeks—reaching USD 1,613/FEU container for Shanghai–Rotterdam and US$1,804 per 40ft container for Shanghai–Genoa on October 2.
China’s two main freight indices have also experienced significant declines, falling to levels not seen since 2024. On September 29, the Shanghai Containerized Freight Index (SCFI), reflecting ocean freight and surcharges on the spot market from Shanghai, reached USD 1,114.52/TEU—the lowest since 2023.
Similarly, the China Containerized Freight Index (CCFI), covering the entire Chinese market, dropped to USD 1,087.41/TEU, also the lowest since January 2024.
Shipping lines are attempting to cope with the reduced demand and lower rates by increasing blank sailings and cutting capacity. However, East–West spot rates are expected to continue falling in the coming weeks. Drewry’s experts do not have much optimism, anticipating that the supply-demand balance will weaken further in the upcoming quarters, leading to contracting spot rates.
Overcapacity Remains the Main Challenge
One of the primary causes of this rate pressure is overcapacity, driven by orders for larger vessels and their continued deployment on shipping routes. Danish shipping data analysis company Sea-Intelligence projects that the market is heading toward cyclical overcapacity, which is expected to peak in 2027 at a level last seen during the 2016 container shipping price war.
To explain their methodology, Sea-Intelligence analysts stated they began with a baseline of vessel supply versus expected container demand growth, then systematically adjusted capacity estimates based on several key factors:
- Long-term structural slowdown in vessel growth
- Impact of port congestion
- Capacity absorption from the Red Sea crisis
- Forecasted vessel scrapping
The demand outlook, on the other hand, is based on real-world GDP growth.
This model indicates that the global container market is set to shift from a period of recent capacity deficits back into significant overcapacity. It is projected to peak in 2027 at a level comparable to 2016—a year remembered for a fierce price war among shipping lines.
While this projected overcapacity is substantial, it is not as severe as during the 2009 financial crisis. Additionally, there are major uncertainties in this forecast. The analysts note that the forecast assumes a significant increase in vessel scrapping beginning in 2026, which would eventually remove 13% of the current fleet that is 20 years old or more. It also assumes that the Red Sea crisis will be resolved by mid-2026, thereby releasing a considerable amount of capacity back into the market.
The timing of a resolution, however, remains a critical variable; a prolonged crisis could continue to absorb capacity and reduce oversupply.
Conversely, the ongoing US trade war presents a downside risk to demand, further dampening the recovery prospects for the industry. Additionally, any further increase in new vessel orders could exacerbate the upcoming overcapacity issues, prolonging the market’s imbalance.
Uncertainty and Instability Challenge Shipping Market
The shipping industry is currently facing a challenging period characterized by historically low freight rates driven by decreased demand and persistent overcapacity.
While carriers are adjusting their capacities to mitigate losses, the outlook remains uncertain due to several geopolitical and economic factors, including unresolved trade tensions, unexpected port congestion levels around the world, and the potential for increased vessel scrapping or new vessel orders.
There is also the matter of economic uncertainty, with the world teetering on the brink of a recession. In 2025, the World Bank predicts global growth will slow to 2.3%, its weakest rate since 2008, outside of actual global recessions. Freight demand is highly correlated with economic growth.
Note: shaded area indicates recession
Source: World Bank
The industry’s trajectory will heavily depend on how these variables evolve in the coming months and years, especially regarding the resolution of regional crises and global economic growth.
