Shipping: Has The Party Ended?

The past four years have been a bonanza for global shipping lines and their investors. Are they ready for the trade and supply chain disruptions that will be unleashed in 2025?

For years, shipping was in the doldrums. The Global Financial Crisis of 2008 hit shipping rates hard. Growth remained anemic until the pandemic. For a few months, it seemed the industry would collapse. Investors faced capital calls. Ships were idled and capacity was retired. Just as suddenly, the industry found their fortunes on the rise. Rates hit historic highs and kept climbing. Even in the face of high interest rates, demand for shipping continued to grow. 

Big shipping organizations and their shareholders have been enjoying the bonanza. Many have been using the windfall to reward their investors through share buybacks and dividends. They have been ploughing profits into capital market instruments and bonds, likely as a hedge against future down-markets. And they have been ordering new capacity, filling shipbuilder's orderbooks and pipelines.

Now, however, it seems the global trade environment is about to see significant disruption as the opening salvos of trade wars are fired in multiple directions around the world. Tariffs and trade barriers tend to reduce global demand for shipping. At the very least, they add to the complexity and friction of global trade. Volume growth may no longer be a given for shipping lines.

It seems the global trade environment is about to see significant disruption as the opening salvos of trade wars are fired in multiple directions around the world.

For the most part, global shipping lines have done a good job analyzing the trends, running scenarios and conducting strategic planning. Unlike the fleets they operate, shipping line decision-making has been relatively agile versus other sectors. But most of it happens behind closed doors. And questions are emerging about whether that approach will allow them to remain agile in the complex environment ahead.

Reset 2025

Maybe cooler heads will prevail and markets will step back from trade wars. The more likely scenario for 2025 is one of tariffs and counter-tariffs, lower trade volumes, disrupted demand patterns and widespread stagflation (where markets are fighting stagnant growth and high inflation at the same time). The pace of change will likely also be staggering — tariffs are being announced and applied in the space of days — staying ahead may be nearly impossible.

Against a backdrop of demand instability, growing capacity, increasing pressure for carbon reduction and shifting trade patterns, we expect to see shipping rates become much more volatile in 2025.

One might also anticipate that global supply chains are about to become significantly disrupted as companies rewire their value chains to address new tariff risks and costs. For some, that will mean significant near-shoring to their largest customer bases. Others may look to new export markets, causing shipping lanes to be redrawn and demand for new ports and operators to grow. 

In 2025, we expect sustainability to remain at the top of many customers' agendas, creating competing pressures for global shipping lines. Do you retire older ships as new capacity comes online? Or do you keep sweating your assets in order to drive market share? Do you invest into alternative fuels now in order to be part of the solution? Or do you wait until a proven technology emerges?

Against a backdrop of demand instability, growing capacity, increasing pressure for carbon reduction and shifting trade patterns, we expect to see shipping rates become much more volatile in 2025. Some niche players may struggle to survive. Larger players will need to remain agile and aware in order to maintain margins.

Our prediction and advice

We believe this period of disruption and margin volatility will force many shipping lines to rethink their investment strategies. Far too little has been invested in collaboration, digitization and sustainability since the good 

times got underway. In this uncertain environment, shipping executives would be well advised to start reinvesting their windfalls into areas that will deliver longer-term efficiency and competitive advantage.

At the same time, we expect many shipping line leaders to start to expand the number of voices they bring into the room on scenario planning and strategy development. In this environment, leaders need to be able to tap into global tax and regulatory networks. They need the council of technology experts and sustainability professionals. They need to understand what's working and what's not working in other industry sectors.

And should disasters be averted and threats of tariff wars fade into the background, this period should still remind shipping line leaders that the world is an uncertain place. The good times were fun. But the party has ended. It's time for shipping line leaders to refocus on the future.

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