Impact of the Resumption of Red Sea Routes on General Cargo Shipping Market

With the ceasefire in the Red Sea taking effect, an increase in container ships transiting the Suez Canal is expected, leading to heightened competition in the general cargo market. This could exert pressure on daily charter rates for conventional cargo ships. The route's restoration may also reduce the demand for ton-miles for project cargo, impacting freight rates. While the shortened journey may release some capacity, the overall capacity is expected to remain stable due to limited scrapping of old vessels and delivery of new ships. Currently, the transit volume through the Suez Canal has not yet returned to pre-crisis levels, and shipping companies are still exercising caution. According to Drewry's predictions, the general cargo market will gradually recover, and the Suez Canal route is expected to return to normal operations in the first half of 2026.

Competition for General Cargo Ships

If the Red Sea route continues to reopen, the general cargo shipping market will face direct competition from both its own fleet structure and container ships. The shortened journey will release a significant amount of capacity, reducing the demand for ton-miles and vessel utilization rates. Additionally, the large-scale return of container ships to the Suez Canal may lead to short-term port congestion and trade delays, but in the long run, it will enhance the efficiency of container transportation networks and overall competitiveness, attracting some suitable containerized cargo sources.

Although the direct impact of containerization on conventional general cargo segments is relatively limited as these goods are better suited for dry bulk shipping, with the full restoration of the route, the advantages of container transportation in terms of efficiency and cost may gradually squeeze general cargo sources. The ultimate impact will depend on the cost-benefit analysis of transportation methods by cargo owners.

In the project cargo sector, container liner companies are also competing for related businesses, especially when there is excess container capacity. They typically load single large project cargo items in the midship area and secure them using a series of frame containers.

A similar trend is observed in the dry bulk segment. For example, Vestas has mentioned that they often utilize the upper decks of handy and ultramax bulk carriers for transporting light project cargo.

According to data, the impact of the Red Sea crisis that began in November 2023 on conventional general cargo ships was relatively minor, primarily due to their low dependence on that route. However, the comprehensive reopening of the Suez Canal will shorten journeys and reduce transportation costs. As operations normalize, these carriers may need to adjust service routes, port calls, and schedules to restore operational efficiency to pre-crisis levels.

Project cargo ships are most significantly affected by the Red Sea crisis, as these goods are high value, time-sensitive, and require extensive detours. If the route is reopened, the release of capacity due to the shortened journey may lead to a decrease in vessel utilization rates, potentially putting downward pressure on time charter rates. However, in the long run, the continued demand for project cargo in the infrastructure and energy sectors will absorb the growth in capacity. The expected persistence of demand for project cargo is projected to keep freight rates above the owners' profitability levels.

Key Impacts

The comprehensive resumption of Suez Canal usage will release a significant amount of capacity, reducing ton-mile demand and vessel utilization rates, potentially leading to port congestion, intense competition in container services, and downward pressure on freight rates. The resumption of the route may intensify competition, prompting a portion of goods to shift towards container transportation. While project cargo ships may be affected, the strong demand for energy and infrastructure projects in the long run is expected to gradually drive freight rates back to pre-crisis levels.