Ocean 3 alliance’s unprecedented Asia-EU capacity cut

The Ocean 3 (O3) alliance formed by CMA CGM, CSCL and the Middle East’s UASC has made an unprecedented move to counter weak demand and critically low shipping rates.

The O3 alliance has announced that it will withdraw one of their four Far East-North Europe strings for 12 consecutive weeks starting from the end of this month.

The move is the first concession in the ongoing Asia-Europe rate war as shipping lines try to outmanoeuvre one another to secure trade amid weak demand for ocean freight.

The announcement is also unprecedented as it coincides with the start of the summer peak season which normally runs from late June to early September on the Asia-Europe trade.

The O3 withdrawal will remove around 12,000-teu weekly from the FENorth Europe service, representing about 20% of the O3 capacity and 4% of the total capacity on the route, according to Alphaliner.

Apart from the cost of idling the affected vessels, the carriers will also risk losing market share to their competitors, who stand to benefit from the cargo shifts away from O3.

The alliance may be forced to make the capacity cut permanent, as cargo volumes are unlikely to pick up in September to support the resumption of regular services.

The alliance members clearly feel the risks are worth it if the reduction in capacity is sufficient to ensure the success of the 1 July general rate increase (GRI).

According to Alphaliner figures, the SCFI spot rate from Shanghai to North Europe sunk to an all-time low of US $205/teu on 19 June, which is not even enough to cover bunkering.
Source: ASC