There are clear indications that the carriers are worried about the strength of the Asia-to-U.S. market. Rates are on a downward trajectory and services are being suspended. These are telltale signs that the demand is not close to rebounding.
The carriers have canceled hundreds of sailings since the beginning of July in the Asia-to-U.S. market. However, they have shown restraint in pulling entire services from the rotation. That is until now. The Alliance members consisting of Hapag-Lloyd, ONE, Yang Ming and Hyundai, announced that effective October 1 their PN3 loop was being suspended until further notice. The PN3 loop provides service from Asia to US West Coast ports.
The Alliance called the suspension necessary due to deteriorating market conditions. Translated, the long-term forecast for freight rates is dreadful. Although nothing is imminent, the 2M Alliance and Ocean Alliance could follow suit and announce similar service suspensions of their own. Considering imports from Asia to U.S. are down 20% this year, it is more likely than not that further suspensions will be announced by all alliances.
The Alliance clearly made the decision to suspend the PN3 service in hopes of keeping supply and demand in check. Being the first alliance to take this drastic action comes with a risk. Customers that rely on using the PN3 service could retaliate by seeking out alternative solutions provided by the other alliances. That decision poses its own risk for shippers. The decision could backfire on shippers if the 2M Alliance and Ocean Alliance start suspending services.
The current position of the Alliance is clear. Their number one priority is keeping rates from tanking even if that means losing a few customers along the way. The position of the other two alliances will become clearer over the next few weeks. At a minimum, shippers should expect more canceled sailings announced by all alliances in an effort to keep rates at break-even levels.
