Container Lines Can Expect Bigger Profits, More Investment

2017 is shaping up to be container shipping’s best year in nearly a decade. With freight rates on the rise and operating costs on the decline, container lines can expect a boost in shipping profits now and in the future. This outlook is inspiring more interest and investment in the industry.

There was a time when the cost to transport a container was so low that container lines were losing money with each voyage. This resulted in losses for a majority of container shipping leaders in 2016. Maersk Line, the industry’s leader, reported an annual loss of $376 million for 2016. In contrast, the company has forecast a shipping profit of one billion dollars for 2017.

In late June of 2017, the Shanghai Containerized Freight Index (SCFI) experienced a growth spurt, nearly doubling the SCFI rate from a year earlier (2016). Influenced by a new round of FAK (freight all kinds) rate hikes, and a disciplined intended implementation of peak season surcharges (PSS), spot rates from Asia to North Europe gained 15.1 percent; rising to $1,015 per TEU. The SCFI component for the United States’ West coast saw rates soar 26.2 percent to $1,378 per container. This has meant a return to profit for most container shippers.

The last couple of years (2016, 2017) have seen a flurry of mergers, alliances and partnerships between container shipping leaders. In the interest of survival, one time rivals have found common ground and reached partnership agreements. This has helped them to lower operating costs on major trade routes and reduce competition throughout the industry.

With volatility in the shipping sector seeming to be a thing of the past, institutional and private investment is returning to the industry. For one, there is an urgency to invest in containers to meet the rising demand for shipping services. In late July 2017, COSCO announced that it will invest more than two-hundred million dollars to purchase used shipping containers to add to its fleet. They are not the only ones, other shipping leaders are investing in containers too

Over the last decade, the container shipping sector has undergone a positive transformation. In doing so it has emerged as a stronger, more profitable industry and a better investment opportunity for private investors.

Container Investing Is An Alternative To Traditional Investments

Many investors are growing tired of worrying about the poor performance of stocks and bonds in their portfolio. To relieve the pressure, a growing number are seeking alternatives to the traditional investments they hold.

At the top of the list of the most popular alternatives is investing in containers. There are three reasons for this investment’s rise in popularity.

  1. It is a hard asset.
  2. It produces income.
  3. There is a growing demand.

Hard Assets

In the event of currency devaluation or rising inflation, hard assets have proven that they can protect your portfolio against losses experienced by traditional investments. In fact, hard assets are negatively correlated to stocks and bonds; meaning that they tend to behave differently and move in the opposite direction of equities. This is because hard asset investments have a fundamental, intrinsic value. Let me explain …

In the last several years, Warren Buffett has purchased two railroad companies, the Burlington Northern and Santa Fe Railroad. Why did he buy these? A railroad, like shipping containers, is a hard assets that makes money by moving other hard assets. Warren Buffett invested paper money into hard assets, so that if the dollar was to drop to zero it has no effect on his investment, he still owns a railroad!

Making an investment in hard assets is more appealing and much simpler than it was years ago. In today’s marketplace there are an increasing number of alternative investment opportunities that are easier to buy into, than stock was “in the old days.” A container investment is definitely one of the easiest.

Income-Producing

People on a fixed income, like pensioners and retirees, would benefit greatly from investments that earned a steady revenue and supplemented their retirement.

The shipping containers that investors have invested in are leased to shipping and logistics companies, and generate a monthly income for transporting different types of cargo. The revenues generated from the lease of the containers provide additional income for the investor.

Over the lifetime of a container, which is 10 years or more, leasing revenues can add up to a large sum of money for investors.

Rising Demand

As the world economy continues to grow, it can be expected that the demand for shipping containers will increase as well. With countries across the globe working toward increasing their GDP, more and more containers will be needed to facilitate their growing imports and exports.

In the last couple of years, two significant projects have contributed to the long-term demand for containers. The Panama Canal expansion and China’s One Belt, One Road initiative have revived trade routes and opened the door to more capacity, that will continue to support the need to ship cargo.

Summary

The most appealing aspects of an investment in shipping containers is that there is a constantly rising demand for the income-producing hard assets. Across the world’s busy highways, railways, and seaways, shipping containers are generating wealth for countries and investors.