Container Rates Flatline: Why Excess Capacity Trumps Hormuz Crisis

THE PARADOX: 30% RATE JUMP, THEN FLATLINE

Five weeks into the Hormuz blockade, the container market faces a paradox. Spot rates jumped 29-31% from end-February to early April across all major East-West trades. Then, inexplicably, rates stalled flat in the first week of April. This appears irrational. It is actually a textbook example of how macroeconomic forces (capacity) can overcome a geopolitical shock (war).

THE DATA

Drewry's World Container Index (WCI) for week ending April 3:

• Shanghai-Rotterdam: flat at $2,543 per 40ft (unchanged week-on-week)
• Shanghai-Genoa: +2% to $3,529 per 40ft
• Shanghai-Los Angeles: -1% to $2,663 per 40ft
• Shanghai-New York: +1% to $3,434 per 40ft

Meanwhile, Xeneta's short-term spot rates tell a different story: shippers can still find rates as low as $1,650 (China-US West Coast) and $2,450 (China-US East Coast). These are well below the WCI average, indicating fierce rate-cutting by carriers desperate for any available volume.

THE CULPRIT: CAPACITY GLUT

The fundamental issue is overcapacity. Despite the Hormuz closure forcing reroutes via the Cape of Good Hope (adding 10-14 days to East-West transits and $5-10M per ship in extra fuel), carriers have not reduced slot availability. In fact, only four blank sailings were announced for the week of April 3. This signals either confidence in demand recovery or desperation to fill ships at any price.

The math favors desperation. April spot rates at $2,430 (Far East-US West Coast, Xeneta average) imply a carrier margin of perhaps $400-600 per container after fuel, when pre-crisis margins were $800-1,200. Carriers are operating at compressed profitability even with the war premium factored in.

THE DEMAND HEADWIND

Container demand is weakening precisely when it should be strong. US shippers face rising fuel costs (gasoline prices at 5-year highs due to oil), which typically triggers demand pullback. Additionally, the Easter holiday window typically sees softer bookings. With bulk inventory at major retailers already built, shippers lack urgency.

This creates a cascading logic: weaker demand means carriers cannot justify higher rates. Even though fuel costs are double pre-crisis levels, carriers prioritize volume over margin. CMA CGM's new FAK (Freight All Kinds) rate of $3,500 per 40ft on Asia-North Europe routes was announced Wednesday but is already undercut in the market by $1,000 per box.

THE ALTERNATIVE ROUTING FACTOR

The Cape reroute adds 10-14 days and roughly $5-10M in extra fuel per ship per voyage. This should create a permanent price floor that justifies premium rates. Instead, carriers are slow-steaming (reducing speed to 12-14 knots vs 18-20) to manage fuel consumption and schedule compatibility. This mitigates the capacity shortage that would normally arise from longer transits.

However, slow steaming has its limits. Extended voyage times reduce ship utilization (fewer rounds per year), which erodes overall profitability. Carriers are buying time with slow steaming while demand stabilizes, but this approach cannot sustain indefinitely.

THE BLANK SAILING QUESTION

Analysts note that if demand does not spike over Easter, carriers will likely pivot to blank sailings as their next lever. This would reduce supply, support rates, but also extend wait times for shippers. The tradeoff: accept blank sailings and higher rates, or suffer lower rates but longer delays.

The coming weeks will determine whether slow steaming and alternative routing can "hold the line" on rates, or whether carriers resort to the blank sailing tool. If blank sailings hit at scale, rates could re-accelerate. If demand remains tepid and carriers maintain capacity, rates could drift lower despite fuel cost pressures.

FOR MARITIME OPERATORS AND SHIPPERS

The lesson: geopolitical shocks to supply routes do not automatically translate to rate inflation if demand is slack. Carrier cost inflation (fuel) meets shipper demand weakness, and demand wins in the short term. Only sustained demand recovery or coordinated capacity reduction by carriers will drive rates higher. Savvy shippers are locking in spot rates this week before Easter demand pulls spot rates up or blank sailings create scarcity. Carriers are managing week-to-week, unable to commit to sustained rate increases.