Carriers Navigate Red Sea Crisis and Rail Congestion Risks

This week’s market update dives into critical disruptions and strategic shifts shaping the logistics industry. The Red Sea crisis has unexpectedly stabilized freight rates by absorbing overcapacity, though warnings persist about future rate pressure once the situation resolves. The closure of Baltimore port following a bridge collapse is diverting cargo to other East Coast ports, with trucking and capacity challenges adding to short-term costs. Meanwhile, THE Alliance announces resilient trans-Pacific network adjustments for 2025, and Vancouver’s rail congestion highlights infrastructure challenges amid rising import volumes. Finally, Maersk’s integrated strategy faces growing scrutiny, raising questions about neutrality and opportunities for competitors. Stay informed as we analyze these changes and their implications for the global supply chain.

Effect of Red Sea Crisis on Carriers

• Carriers reported a significant EBIT loss in 2023-Q4, with potential for larger losses in 2024 if not for the Red Sea crisis.
• Red Sea crisis acted as a “blessing in disguise” for carriers, absorbing overcapacity and raising rates to profitable levels.
• During the pandemic, global capacity shortage led to “rate contagion,” where low freight rates in one trade lane led to vessel removal and rate increases in others.
• Red Sea crisis did not cause rate contagion across all trades, indicating pre-existing overcapacity was sufficient to absorb added capacity requirements.
• Warning raised about impending negative rate pressure and collapse once Red Sea reopens, especially with the delivery of new capacity in 2024.

Impact of Baltimore Port Closure

• Closure of Baltimore port due to bridge collapse prompts container ships diversion to other US East Coast ports.
• US East Coast port operators are ready to handle diverted container ships, with marine terminals in New Jersey and Virginia expanding gate hours.
• CSX Transportation increases intermodal service to accommodate diverted cargo.
• The Maryland Port Administration’s uncertainty about Baltimore’s reopening prolongs the influx of traffic to other Northeast and mid-Atlantic ports.
• Shortages in drayage and flatbed capacity persist despite excess capacity at other ports and highways.
• Trucking challenges arise as available truck capacity doesn’t necessarily align with diverted containers, leading to delays and increased costs.
• Knock-on impacts expected to be short-lived but could vary depending on the duration of the closure.

THE Alliance 2025 Trans-Pac Network Changes

• Remaining members of THE Alliance unveil trans-Pacific network plans for 2025, minimizing the impact of Hapag-Lloyd’s departure.
• Network adjustments aim to maintain service continuity, leveraging fleet enhancements by Ocean Network Express (ONE) to offset Hapag-Lloyd’s departure.
• Emphasis on minimal impact highlights network resilience and adaptability amidst industry changes.

Rail Congestion in Vancouver

• Port of Vancouver faces rail container backlogs due to import surge, leading to congestion lasting over two months.
• Rail container dwell time remains high, indicating challenges in managing import flows.
• Ongoing efforts to clear congestion underscore the need for proactive measures to enhance rail infrastructure and optimize freight flow.

Implication on Maersk’s Integrated Strategy and Growing Scrutiny

• Maersk’s integrated model challenges traditional separation between carriers and logistics service providers.
• Maersk’s model raises questions about maintaining neutrality and customer trust.
• Scrutiny may open opportunities for competitors to capitalize on perceived weaknesses.
• Concerns over neutrality could impact Maersk’s ability to optimize rates and capacities.
• Market response will shape future strategies and industry evolution.

Industry Trends