asia economic growth shipping investment

Asian Economic Growth Makes Shipping an Appealing Investment

Chinese reforms have the potential to boost private consumption and transform the Asian economy. In doing so, the economic momentum will ignite GDP in the region, and make growth more sustainable.

The Economic Outlook For Asia:

Albeit nowhere near the 10 percent growth experienced by China in previous years, steady growth is still the outlook for Asia, particularly with China’s One Belt, One Road initiative steadily moving forward. According to analysts, Gross Domestic Product (GDP) increased 6.1 percent year-on-year in Q4 2015 and the growth is expected to continue throughout 2016. This strong growth is thanks to two important contributors:

  1. Exports of electronics to the United States and European Union, which have consistently gained momentum since 2013-2014.
  2. Solid domestic demand across much of Asia. In Japan for example, an increase in wealth has supported the growth of private consumption.

Asia’s Undisputed Dominance in Shipping:

With a large number of the world’s busiest shipping ports, such as Singapore, Shanghai, and Busan, located in Asia, the continents influence on the global shipping industry is irrefutable. To give you an example of the magnitude of their contribution to global economic growth, the port of Shanghai alone accommodates more than 32 million TEU each year.

asia shipping influence irrefutable

With some of the world’s busiest shipping ports located in Asia, the continents influence on global shipping is irrefutable.

Ports and terminals are not the only place Asian shipping companies have a foothold. Despite partnerships and alliances from leading container shipping lines outside the continent, Asia-based companies, such as CSCL, OOCL, and Hanjin are remaining competitive despite facing constant economic and industry-related challenges.

The Investment Climate in Asia:

With regards to the region’s financial stability, there is increasing risk for investors who continue to pursue traditional investments. Although for the moment global stock prices have appear to have stabilized, they are still an area of concern and risk.

In contrast to traditional options, Asia’s well-established alternative investments are growing increasingly appealing, and are demonstrating that they are a great investment for the world’s more cautious investors.

Sectors that promote growth in the region are seen as the most obvious choice. Shipping for example offers investors the opportunity to invest in port infrastructure and also in equipment, such as ship-to-shore cranes and shipping container investments.

asia alternative investments appeal to investors

Asia’s alternative investments are growing increasingly appealing and are proving to be a great investment for cautious investors.

Investing in Asia’s Growth Industries:

Potential growth in Asia is still much higher than in other developed regions. For many economies the quality of specialization and the sophistication of industry, as well as strong exports, suggests that the investment community can expect medium-term growth for Asia in 2016. Moreover, the stronger growth experienced in advanced economies such as the United States, in addition to more competitive exchange rates, will help drive Asian exports ever-higher. This will provide a great experience for investors and strengthen confidence in the shipping industry and the region.

China’s ambitious reform agenda, which has placed emphasis on private consumption, working in combination with some key investments made by the world’s leading shipping companies will help accelerate the re-balancing of the global economy. That said, private consumption (as a share of GDP) in Asia is expected to rise over the medium term, reaching nearly 40 percent of GDP, and deliver more sustainable growth to investors’ portfolios.

shipping rates not container lease rates

Cargo Freight Rates Are Not Shipping Container Lease Costs

For much of 2015, analysts and investors heard endless woes from leading shipping lines about falling containers freight rates. To be clear, this is the amount of money the container shipping line receives per TEU it transports; not the cost of acquiring, using, or maintaining the shipping container itself.

The freight rate charged by shipping lines should not be confused with the lease or rental dues paid to the container leasing company for the use of the shipping container. Please allow me to explain the difference …

A Basic Ocean Freight transportation rate is the cost the container shipping line associates with moving your cargo. This is priced according to a number of contributing factors, such as the origin and destination, as well as the cargo type; i.e. dry cargo container or reefer container.

basic ocean freight rate

A Basic Ocean Freight transportation rate is the cost the container shipping line associates with moving your cargo.

In addition to the Basic Ocean Freight rate, there are a number of mandatory surcharges applied to cover cost items or services that are either pass-through charges (from terminals for example), or considered to be beyond the basic ocean transport services. Expect that these surcharges will be applicable to every container shipment transported by the shipping line.

The three most common surcharges levied against container shipments are:

  1. Bunker Adjustment Factor. A charge to account for the fluctuations in bunker costs
  2. Terminal Handling Charges. Fees based on the cost of handling the container in the terminals, including loading and discharging containers to/from the vessel.
  3. Documentation Fees. A service whereby all necessary transport documents are provided for clients at the origin and destination.

On the other hand, the shipping container lease or rental cost is the fee charged by container leasing companies like Pacific Tycoon, for allowing clients the extended use of their shipping containers to transport cargo to domestic or international destinations.

Generally speaking, but not in all instances, the shipping container lease covers delivery and pickup, as well as cleaning and maintenance to the unit. the client only needs worry about filling and emptying their contents.

basic ocean freight rate not container lease rate

The “Basic Ocean Freight Rate” charged by shipping lines is independent of the cost associated with leasing a shipping container.

The intention of writing this article was to explain that the falling prices for the “Basic Ocean Freight Rate” charged by shipping lines is independent of the costs associated with the lease of shipping containers, and therefore in no way affects the performance of the returns on shipping container investments. They are two separate costs for shipping clients.