The speed with which the geopolitical situation in the Middle East is changing following successful ceasefire negotiations between Israel and Hamas over the war in Gaza will most likely not be matched by the expedited recommencement of trade through the Suez Canal.
This is despite claims by the Houthi movement that attacks on shipping in the important EU-Asia waterway will cease.
Industry analysts at Drewry have indicated that volatility in the region remains for now, especially after Monday’s inauguration of Donald Trump as US President.
In its latest update, Drewry highlighted that the next few months would be critical in determining the level of market volatility.
The maritime consultancy’s senior manager Container Research, Simon Heaney, observed that the global shipping industry was still waiting for clarity on the economic and geopolitical implications of recent events, with the range of potential outcomes remaining broad.
Following the brazen hijacking at sea of a pure truck and car carrier on November 19 in 2023, the Galaxy Leader, Suez Canal transits dropped significantly as most shipping lines opted to reroute vessels via the Cape of Good Hope.
Diverting vessels all the way around South Africa stems from the reluctance of lines to pay Yemen’s Houthi rebels for safe passage through the Bab al-Mandab Strait, the choke point separating the Red Sea from the Gulf of Aden.
Ocean carriers are generally also reluctant to arrange naval escorts from supporting governments.
Drewry’s analysis indicates that while a peace deal in Gaza has been brokered, it remains fragile, and any breakdown in the agreement could provide the Houthis with justification to resume missile attacks.
The consultancy also questioned the reliability of Houthi commitments, stating that their actions, which have proved to be financially and politically lucrative, cast doubt on their motives to suspend attacks. Shipping companies are particularly wary that vessels could be targeted if perceived to have even tenuous links to Israel, regardless of whether such connections are accurate.
Adding to the complexity, major carriers are in the process of implementing new East-West networks due to significant changes in shipping alliance structures. Drewry suggested that carriers were hesitant to adjust their operational plans during this critical period, only to potentially revise them again if the situation deteriorated.
Interestingly, the diversion of shipping routes away from the Suez Canal has proved beneficial for carriers. Drewry estimates that rerouting has effectively reduced capacity by approximately nine per cent, allowing shipping lines to post robust profits over the past year. The report highlighted that liner stock prices had often dropped when progress in Gaza ceasefire talks appeared likely, with major carriers even receiving credit rating downgrades following recent developments.
Once conditions in the Suez Canal are deemed safe, with lower insurance costs being a key indicator, carriers are expected to focus on cutting capacity aggressively. This may include scrapping older vessels, increasing blank sailings, and idling ships for longer periods. However, Drewry believes carriers possess the tools to manage supply-demand dynamics effectively, ensuring rates do not fall drastically.
Drewry also flagged the potential impact of Trump’s return to power on global shipping demand. The US President has pledged to issue hundreds of executive orders within his first week back in office, including those relating to tariffs. The uncertainty surrounding the scope and timing of these measures poses challenges for an industry that relies on predictability and international cooperation.
Reports suggest a phased approach to tariff increases may be under consideration, but Trump’s characteristic ambiguity leaves room for speculation. Drewry pointed out that Trump had consistently criticised the US trade deficit, which stood at approximately US$1.1 trillion as of November 2024. The largest deficits are with China, Mexico, and Vietnam, making these nations potential targets for tariffs.
Drewry remarked that while Trump viewed tariffs as a means to reduce the trade deficit, revive domestic manufacturing, and secure more favourable deals for the US, the implementation of such policies could have significant repercussions for global trade.
As geopolitical uncertainty persists, Drewry emphasised the importance of carriers’ adaptability in navigating the challenges of 2025. However, the sector’s reliance on demand-side stability, which remains outside its control, underscores the complexity of the road ahead.
