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Global shippers surf demand wave heading into Covid economy

[SINGAPORE] The world's major shipping companies, riding an unprecedented wave of demand for everything from housewares to medicine, are finding the record for the largest load of containers hard to hold onto this year.

The newest titleholder, the 400-meter-long Jacques Saadé owned by France's CMA CGM SA, arrives in Malta on Tuesday capping a maiden voyage that began in Singapore two weeks ago. On board are 20,723 full containers, using about 90 per cent of the ship's capacity and dethroning HMM Co's Algeciras, the South Korean champion since May.

That the vessel named for CMA CGM's late founder hauled the biggest-ever load on her first trip testifies to a global economy limping along but still lumbering ahead. While the pandemic hits spending on services like hospitality and tourism, demand for household merchandise has outpaced expectations as consumers marooned at home shop more online.

For the container liners, the change in consumer preferences is a bonanza that is also forcing them to think short term about how many ships to deploy. It's a tricky balancing act for a capital-intensive industry that tries to anticipate economic turns years in advance and adjust capacity accordingly.

"Such a rapid shift has never occurred in the history of container shipping," said Lars Jensen, a Copenhagen-based consultant and former executive of A P Moller-Maersk A/S, the world's largest container carrier. "This also means it is realistically not possible to predict what this will mean for 2021." Some companies are enjoying the windfall for now, though Maersk stopped short of looking much past 2020 when it boosted its earnings guidance earlier this month. Meanwhile, the cost of moving a 40-foot container across the Pacific is still hovering near US$4,000, almost triple the rate at the start of the year - even after the industry's usual peak season from August to mid-October.

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In this environment, "only a fool would try to predict the future," said Alan Murphy, the CEO of analysis company Sea-Intelligence.

Still, there's no harm in trying. Digging into the data, Mr Murphy said the rebound in goods demand is very uneven globally, driven largely by purchases from the US of home-office supplies, recreational gear, gardening tools, furniture, clothing and books.

"This would all suggest that the current surge is short-lived, and will shrink considerably if lockdowns are lifted and US consumers can shift their consumption back onto services," Mr Murphy said.

By contrast, Oxford Economics sees the divergence of goods and services spending lasting a while. It expects world goods trade to return to late-2019 levels at the end of next year but said "we do not see a similar recovery in services until 2023." If that's the case, transport costs for merchandise could stay high and buck the usual seasonal patterns.

Full Steam Sanne Manders, the chief operating officer at Flexport, a San Francisco-based freight forwarder, said one result could be seaborne shipping rates that don't come down very much like usual after China's Golden Week holiday in early October. And they may stay elevated until mid-February.

"You typically see a softening in ocean freight after Golden Week, which is happening a little bit, but we don't expect it to go very far down," Mr Manders said. "There's not an idle ship available." On top of the demand pressures are structural changes in an industry that had a couple dozen major players a decade ago, and now has fewer than 10. So when the shippers cancel sailings in anticipation of a softening global economy, for instance, rates will inevitably be volatile.

"The supply-demand situation is strong right now in favor of the carriers," Mr Manders said. "The consumer is just buying a lot of stuff."

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