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Annual negotiations between U.S. companies and the world’s maritime shipping giants are beginning, and this year, there are several key headwinds for the ocean carriers that could help companies claw back logistics costs.
After several months of front-loading ahead of tariffs threatened by President Donald Trump across many global trading partners, freight markets “peak season” has subsided and costs are normalizing in the U.S., said Brian Nemeth, global co-leader of AlixPartners’ logistics & transportation practice, with the EU an exception.
On Wednesday, Trump said tariffs will be coming on EU imports, of up to 25%. Then in a post on Truth Social on Thursday, the president reversed his Wednesday statement that proposed tariffs of 25% on Mexico and Canada would be pushed back to April, saying they will take effect on March 4, and an additional 10% tariff on China would be added on top of the 10% levy already in place.
A new report from AlixPartners noted that most ocean carriers on the Transpacific Eastbound lane kept their spot rates in January 2025 the same through the end of the month, signaling an erosion in carriers’ pricing power even before the industry enters what is historically its weakest month of the year.
The Drewry World Container Index shows a decline of 10% to $2,795 per 40-foot container through the week of Feb. 20, and a steady decline since January.
MSC, the world’s largest ocean shipping company, has suspended its new Asia-U.S. West Coast Mustang service, a response to the current “weak conditions “on the Pacific trade route, according to a LinkedIn post from Lars Jensen, CEO of shipping consultant Vespucci Maritime, who noted that rates to both the U.S. East and West Coast dropped 18% in the past week. The spot index from Shanghai to U.S. West Coast has dropped from a peak around $5,000 for a 40-foot container at the beginning of the year to now being around $2,900, according to Jensen.
Ocean freight rates are a key revenue generator for ocean carriers, and the recent results had been strong. Maersk reported a 49% increase in freight revenue in its ocean business in the fourth quarter of 2024. The Denmark-based integrated logistics provider also noted a doubling of capital spending in the ocean business in 2024 from $1.9 billion to $2.7 billion.
Kent Williams, executive vice president, sales and marketing, at transportation and supply chain company Averitt Express, said the company has seen a pullback in ocean orders after strong tariff front loading. In addition to the pullback in ocean freight demand, which influences prices, the amount of vessels available to be serviced also can impact rates.
“We saw a surge in January and February,” said Williams. “Warehouse space is tight in certain hot markets like Savannah, Houston, and Gulf Coast ports. But there is now a level of caution by companies as they brought in what they could ahead of tariffs and now they wait to see how customers find their footing.”
The other cloud of uncertainty hanging over the negotiations is the Red Sea and the hope that ocean carriers who have been diverting trade to the Suez Canal can return. As a result of the diversions, which began in late 2023, the length of transits was increased by weeks. To keep trade flowing and make vessel schedules as reliable as possible, ocean carriers added 162 vessels to their fleet. This added capacity helped create supply chain certainty, but if ocean carriers return to the Red Sea route, those extra vessels will not be needed.
There is no specific indication of Red Sea trade resumption being imminent, but there has been general market chatter about a potential resolution with Trump in office and him seeking a deal in the Middle East, and what it could mean for the ocean freight market. Nemeth said any return to Red Sea transits would could drive down ocean freight prices.
The market remains cautious about suggesting any change could come soon. In an interview with CNBC on Thursday morning, Norwegian Cruise Line Holdings CEO Harry Sommer said efforts toward peace in the Middle East are complicated, and he envisions a scenario where his ships could cruise the Red Sea in 2027.
Another headwind for ocean freight pricing this year is a major change in the ocean shipper alliance structure. MSC, owned by the Aponte family, is now on its own with no alliance affiliation. In February, the much-anticipated launch of “Gemini Corporation” between Germany-based Hapag Lloyd and Maersk started.
The other two alliances are the Premiere Alliance, comprised of Japanese shipping company, ONE (Ocean Network Express), South Korea-based Hyundai Merchant Marine, and Yan Ming Marine Transport in Taiwan; and the Ocean Alliance, a partnership with French-based CMA CGM, Chinese government-owned and operated COSCO Group, and Taiwan-based Evergreen Line.
The partnerships help ocean carriers maximize their services by sharing vessels and coordinating schedules. According to the Alphaliner shipping database, the alliances have a total container capacity just over 81% of the total world fleet.
MSC’s decision to “go it alone,” according to Nemeth, could provide a greater ability to be nimble and respond to changes.
“This is the first time in approximately 12 years have we seen this go-it-alone strategy for a major player,” said Nemeth. “MSC has the potential to be the most nimble and flexible because they can take decisions on their own. This can give the company a competitive advantage over the other alliances due to the fact they are partnerships.”
AlixPartners’ report warned that the implications for ocean freight rates from the latest alliance reshuffle are ominous.
“The shift to three alliances plus MSC will reduce market concentration significantly,” the report stated. “We could see a 9-10% increase in capacity and it’s clear that the reopening of the Red Sea would trigger a step-change in competition to ‘fill the ship.’ The likely upshot: plunging rates, and a reversion to the chronic overcapacity that has long been the bane of the industry.”
Nemeth said adding to the available pool of vessels will be the new vessels coming on line this year that were ordered with record Covid revenue. AlixPartners estimates approximately 205 ships are on order to be delivered in 2025 across all classes of container ships, versus capacity lost with the scraping of approximately 84 ships in 2025. Approximately 35 ships were already delivered in January and February. Looking at the potential for increased capacity should the Red Sea trade route resume, there will be a balance between new vessel builds coming into service and vessel scraps. However, any excess capacity is not likely to be severe, he said, because the new builds are much smaller ships than the mega container ships.
The softness in freight orders will not only impact revenue of ocean carriers who move the freight, but the trucking companies, railroads, and airlines that move the individual products in those containers. Fewer products being ordered and moved by ocean means less air, road, and rail product moved. The trucking industry has been slowly recovering from a protracted freight recession. The CEO of Landstar System in its latest earnings call said while the company did not expect a “boomerang” of a recovery, it did anticipate a “slow and steady” recovery. Shares of Landstar and ground transport peers remain near 52-week low stock prices.
