by Lloyd's List

17 February 2025 (Lloyd'sList) - THE return of regular liner services to the Red Sea routing to Europe will have a significant impact on several key aspects of carrier operations, according to Sea-Intelligence’s latest weekly report.

A combination of front-loading and rerouting around the Cape of Good Hope has led to an increase in empty container exports from US west coast ports since the Red Sea crisis began.

Comparing the earliest pre-Covid year of 2019 with 2024, Sea-Intelligence found that on an annualised basis over 2019, export volume growth stayed between 3% to 4% in February and May 2024, rising to 5% to 6% in the third quarter before reaching its peak of 7% to 9% in the final quarter of the year.

This indicates an increased emphasis on empty export volumes out of North America west coast ports as empties are repositioned to Asia. It noted that this “does make sense though, as it is faster to reposition empty containers from North America west coast to Asia than it is from Europe, especially with the vessels sailing longer around Africa”.

This is also seen in the laden/empty export ratio, where it has settled at around 0.5 in the second half of 2024. This indicates that for every teu exported, two teu are empty.

Sea-Intelligence noted that this ratio has been below 1 for a record-setting 55 months to-date. “The ratio being below 1 for this stretch of time is unprecedented, and likely to continue for at least as long as the shipping lines are forced to sail round Africa,” it added.

The second significant conclusion is that a short-term sharp decline in container demand on Asia-Europe can be expected as soon as the Red Sea crisis ends.

Sea-Intelligence pointed out that when the crisis broke out and ships had to go the long way around Africa, it effectively lengthened the Asia-Europe supply chain by seven to 14 days. This in turn caused shippers to increase their inventories by the same amount as the cargo became treated as de facto inventory.

Based on an average sailing time increase of 10 days, Sea-Intelligence estimated that Asia-Europe demand growth was boosted by 2.9 percentage points in 2024.

Turning to the flipside when the vital trade shortcut opens up, it said: “When this happens, the supply chain will contract by the same amount as it expanded in 2024.”

As inventory held in the longer supply chain is released, importers will curb ordering temporarily to make up for the sudden excess supply. This should theoretically lead to an equivalent contraction in demand over the course of a year.

“However, the contraction of the supply chain is likely to play out over a much shorter time frame than a full year. Therefore, the impact during that period can become severe,” Sea-Intelligence said.

Naturally, the longer the transition is drawn out the less the contraction will be. It warned, however, that in the unlikely event of a short two-week contraction, volume could drop to less than 30% of baseline volume.

Even over a three-month transition period, this could lead to a 10 percentage point drop in Asia-Europe demand growth over the period, the consultancy warned. Furthermore, this would be exacerbated by the freeing up of significant amounts of capacity due to shorter sailing times.

“All in all, we should expect a possibly very dramatic — although temporary — impact on the market conditions,” Sea-Intelligence added.