[Red Sea crisis shoring up freight rates]
Release date:[9:34:08] Read a total of [49] time

The Red Sea crisis supported freight rates in the short term and began to fall in the second half of 2024

Although the recent surge in attacks on vessels in the Red Sea has provided some support to shipping companies' short-term profits, industry analysts believe that this situation is unlikely to change the long-term overcapacity problem facing the container shipping industry. It is predicted that freight rates may start to fall in the second half of 2024 as Red Sea shipping conditions return to normal.

After a sharp correction from historic highs during the pandemic, shipping company earnings in 2023 have fallen sharply. Given the significant oversupply of container ships in 2024 and relatively limited demand growth, freight rates are unlikely to return to the peak levels seen during the pandemic.

In response to the current challenges, most shipping companies have rerouted service routes from Asia to Europe, the Mediterranean and the East coast of the United States to the more distant Cape of Good Hope route to avoid potential risks. Shipping companies remain flexible in ship scheduling and adjust routes in a timely manner to ensure service continuity. However, while short-term supply challenges provide some support for freight rates, tight supply and demand conditions in the container shipping market are unlikely to persist.

Affected by the global economic slowdown, the consumption power of physical goods is relatively weak, and the demand for goods and services has become more balanced than during the pandemic. Total container shipping capacity is expected to grow 7 to 9 per cent this year, while demand growth will be only 2 to 4 per cent. In the absence of major disruptions, freight rates could fall from the second half of 2024.

Despite the pressure on profitability, some companies are expected to maintain a net cash position in 2024, supported by high cash reserves built up from strong operating performance in 2021 to 2022. At the same time, some companies' EBITDA margins may be affected, given that there may be more excess capacity on ocean-going routes. However, by flexibly adjusting routes, optimizing operating costs and pursuing new market opportunities, these companies still have the opportunity to remain competitive in the highly competitive container shipping market.

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