Container shipping heads toward a harder 2026 as Red Sea reopening pressures rates

Dubai: Container shipping companies are bracing for weaker earnings in 2026 as the potential reopening of the Red Sea route threatens to accelerate a decline in freight rates and expose deep-rooted oversupply across the industry.

Carriers including Maersk, Hapag-Lloyd, Nippon Yusen, Cosco Shipping Holdings and Orient Overseas are expected to report softer results next year after a volatile 2025 marked by tariff uncertainty and fragile trade flows. Analysts warn that a full return to Red Sea transits would remove one of the last remaining supports for container rates by shortening voyages and freeing up vessel capacity.

A reopening would worsen what Bank of America analysts describe as “structural overcapacity issues,” at a time when supply growth is already outpacing demand.

Global container ship capacity is projected to rise about 36% between 2023 and 2027, according to Bloomberg Intelligence analyst Kenneth Loh, even as demand weakens. Loh estimates container shipping demand could contract by 1.1% in 2026 if liners return fully to the Red Sea.

Freight rates are already sliding. Global liner prices fell 4.7% to $2,107 per 40-foot container in the week ended January 29, based on the Drewry World Container Index. That decline reflects easing congestion and the gradual unwinding of disruption-driven pricing that dominated the market over the past two years.

The Red Sea disruptions that began in late 2023 forced ships to reroute around the Cape of Good Hope, adding weeks to voyages between Asia and Europe.

Those longer routes absorbed capacity and helped prop up container rates, even as new ships were delivered at a record pace. Similar dynamics drove shipping costs sharply higher in other segments of the market.

Late last year, oil and LNG shipping rates surged to multi-year highs as tankers faced longer journeys, tighter availability and higher insurance costs linked to Middle East tensions. Crude and gas carriers benefited from prolonged voyages that tied up vessels and inflated freight pricing.

That environment is now shifting. While a full resumption of Red Sea traffic is not guaranteed, it appears increasingly plausible after Maersk completed two successful transits through the waterway, its first since attacks by Yemen-based Houthis began.

The move has prompted analysts to reassess how quickly the market could normalize. HSBC analyst Parash Jain previously said prolonged disruptions lasting until at least mid-2026 would have limited freight rate declines to between 9% and 16% this year.

Following Maersk’s return, HSBC warned that a faster transition could trigger an additional 10% drop, potentially pushing Maersk and Hapag-Lloyd into losses.

Jain noted that a rapid reopening could initially support rates if congestion builds at European ports or if Western economies restock inventories early in 2026.

Citi analysts led by Kaseedit Choonnawat echoed that view, saying a reopening during a restocking cycle could provide short-term relief before rates stabilize at lower levels.

Beyond that initial phase, pressure is expected to intensify. Bank of America forecasts that Maersk will issue “soft” profit guidance for 2026 and cut its share buyback program by half.

Consensus estimates point to the Danish carrier posting its first annual loss since 2017 this year, underlining how quickly conditions have deteriorated.

Shipping lines are reluctant to make sweeping operational changes given the fragile security outlook. Drewry Shipping Consultants’ Arya Anshuman and Simon Heaney said carriers remain cautious because a sudden escalation in Houthi activity could force an abrupt reversal.

“Cargo owners are also wary of putting valuable goods at risk and are now well used to longer transits, while ports will not be able to cope with a sudden arrival of ships en-masse,” they said.

The volatility is evident across the industry. While Maersk has resumed limited Red Sea voyages, CMA CGM reversed its decision to use the route after briefly reinstating services.

“That highlights how volatile and unpredictable the situation in the region is,” Loh said. He described a full reopening of the Red Sea as “the wild card” for Asian shipping this year, outweighing tariff risks given the US-China trade truce and continued economic decoupling.

For Japanese liners such as Nippon Yusen, Jefferies analyst Carlos Furuya said profitability pressure will come mainly from oversupply and tariff uncertainty.

The company’s third-quarter operating income missed estimates, with Bloomberg Intelligence expecting further deterioration in its container business as rates and demand weaken.

Ocean Network Express, jointly owned by Nippon Yusen, Mitsui OSK Lines and Kawasaki Kisen Kaisha, reported a net loss of $88 million in its fiscal third quarter, citing the influx of new vessels and slow cargo flows on Asia-Europe and transpacific routes.

The company said ships are likely to continue routing via the Cape of Good Hope for now, leading to only a “modest uptick” in fourth-quarter rates.

Some analysts see relative resilience in Asia compared with Europe, driven by stronger regional demand.

Anshuman and Heaney said Asian carriers benefit from more stable spot pricing and operational conditions. “Intra-Asia trade benefits from greater operational stability, as it is less exposed to geopolitical disruptions such as tariffs and security risks in the Red Sea, which continue to affect major global trade lanes like Transpacific and Asia–Europe,” they said.

For container shipping, the fading of disruption-driven gains marks a turning point. As energy shipping continues to command high premiums due to geopolitical risk, container liners are entering a phase defined by excess capacity, falling rates and tighter margins.

The challenge for 2026 is no longer navigating disruption, but managing a correction that was delayed by crisis.

 - With inputs from Agencies