Container Freight Rates Climb Again as Red Sea Diversions Drag Into a Third Year

What happened?

Container freight rates on major east-west trade routes have risen over the past several weeks, according to widely tracked indices such as the Freightos Baltic Index and the Shanghai Containerized Freight Index, as shipping lines continue to route the vast majority of vessels around Africa's Cape of Good Hope rather than through the Red Sea and Suez Canal. The diversions, first triggered by attacks on shipping in the Red Sea beginning in late 2023, have now persisted for close to three years, reshaping global shipping capacity planning in ways that industry executives increasingly describe as a lasting rather than temporary feature of the market.

The latest uptick coincides with the seasonal restocking that retailers in North America and Europe typically undertake ahead of the year-end holiday shopping period, a period that has historically pushed freight rates higher even in normal years, but which is compounding an already tighter capacity market this year.

Key points

• Container freight rates on Asia-Europe and Asia-US routes have risen over recent weeks amid seasonal restocking demand.
• The majority of container traffic continues to avoid the Red Sea and Suez Canal, routing instead around the Cape of Good Hope.
• The diversion adds roughly one to two weeks of transit time and significant fuel costs per voyage.
• Suez Canal Authority revenue remains sharply below pre-diversion levels, according to Egyptian government figures.
• Shipping lines have absorbed some costs through larger vessels and adjusted network schedules, but rate volatility persists.

What we know

The Suez Canal Authority has reported that transit revenue remains well below the levels recorded before the Red Sea disruptions began, reflecting the continued diversion of the large majority of container and tanker traffic around Africa. Egyptian officials have periodically adjusted canal transit fees in an attempt to lure traffic back, but shipping lines have generally continued prioritising crew and vessel safety over the shorter, cheaper Suez route, according to statements from major container carriers and industry body BIMCO.

Analysts at Drewry and Clarksons Research have both noted that the extended Cape route has effectively absorbed a meaningful share of the global container fleet's capacity simply by adding sailing days to standard routes, a dynamic that has offset some of the overcapacity concerns that had worried the industry as a wave of newly built vessels ordered during the pandemic-era boom entered service over the past two years.

Background

The Red Sea shipping crisis began in late 2023 when Houthi forces in Yemen started targeting commercial vessels transiting the Bab al-Mandab strait, in what they described as actions linked to the conflict in Gaza. Major container lines, including the world's largest carriers, suspended Red Sea transits within weeks, opting instead for the longer route around the southern tip of Africa. Naval deployments by several countries aimed at protecting shipping lanes have continued intermittently, but have not restored the level of confidence needed to bring traffic volumes back to pre-crisis levels.

The diversion added an estimated 10 to 14 days to typical Asia-Europe voyages and increased fuel consumption substantially per round trip, costs that carriers have generally passed through to shippers via surcharges and base rate increases. What began as an emergency rerouting has, three years on, become embedded in how shipping lines plan network schedules, vessel deployment and fleet investment.

Detailed analysis

The persistence of Cape routing has had effects well beyond freight rates themselves. Ports along the African coast, including several in South Africa, have seen increased bunkering and transshipment activity as vessels stop for fuel and provisions during the longer voyage, a modest but real economic benefit for those locations. Meanwhile, the effective reduction in global shipping capacity, caused simply by ships spending more days at sea per round trip, has helped absorb the substantial newbuild capacity that entered the market as orders placed during the 2021-2022 freight rate boom were delivered, easing what many analysts had expected to be a severe overcapacity problem depressing rates through 2025 and 2026.

That dynamic has created a somewhat counterintuitive outcome: an ongoing security crisis that would normally be expected to disrupt trade has instead helped stabilise freight markets for carriers, even as it raises costs for shippers and, ultimately, consumers. Retailers and manufacturers reliant on Asia-Europe supply chains have had to build in longer lead times and higher freight cost assumptions into their planning, according to surveys conducted by supply chain groups including the Council of Supply Chain Management Professionals, with some companies shifting a portion of sourcing toward nearer-shore or alternative suppliers to reduce exposure to the volatile route.

Insurance costs for vessels transiting the Red Sea have also remained elevated, with war-risk premiums quoted by Lloyd's of London syndicates continuing to reflect the ongoing threat assessment, further discouraging a return to the shorter route even for carriers that might otherwise consider it given the cost savings on fuel and time.

Why it matters

Higher and more volatile freight rates feed through into consumer prices with a lag, and central banks in major importing economies have flagged shipping costs as one of several supply-side factors complicating the final stretch of the fight against inflation. For businesses, the persistence of the Cape route has made supply chain planning more expensive and less predictable, prompting some to hold higher inventory buffers than the lean, just-in-time models that dominated corporate logistics strategy before the pandemic.

For Egypt, reduced canal revenue represents a meaningful loss of foreign currency earnings at a time when the country has been managing broader fiscal and currency pressures, adding to the list of headwinds facing its economic reform programme supported by the International Monetary Fund.

What happens next?

Shipping industry executives and analysts generally expect the diversion to persist through at least the remainder of 2026, absent a significant and durable improvement in security conditions in the Red Sea. Freight rates are likely to remain sensitive to seasonal demand swings, geopolitical developments and the pace of further newbuild vessel deliveries scheduled over the coming year.

Egyptian authorities are expected to continue adjusting canal fees and incentives in an effort to attract traffic back, though most industry observers see a broad return to pre-crisis Suez volumes as unlikely in the near term without a substantial change in the security situation.

Insight Media Opinion

Three years into the Red Sea diversion, it is worth being honest about what has and has not happened. Global trade did not collapse, as some feared in early 2024; supply chains adapted, at a cost, and shipping lines found a way to keep goods moving, if more slowly and expensively than before. That adaptability is a genuine achievement of the global logistics system, but it should not obscure the fact that the underlying costs of this disruption have simply been distributed across shippers, consumers and the Egyptian treasury rather than eliminated.

The more troubling lesson is structural: a relatively narrow maritime chokepoint has proven capable of reshaping global trade costs for years at a time, with no clear resolution in sight. Businesses and policymakers should treat this not as an unusual episode to be waited out but as a preview of how vulnerable global supply chains remain to regional conflicts far from the ports and factories that depend on safe passage through them. Building redundancy into shipping routes and diversifying sourcing will remain sensible hedges long after this particular crisis eventually fades.