3 investments needed economic growth

3 Investments Needed to Accommodate Economic Growth

In order for there to be strong global economic growth, world trade must be encourage. This means that strategic investments must be made into the sectors – such as logistics, ports, equipment and infrastructure, that will allow regional shipping industries to flourish, not just immediately; but for decades into the future, as well.

You have to be constantly reinventing yourself and investing in the future. – Reid Hoffman

When consumer demand rises, the need for shipping services increases. This places added pressure on shipping ports to accommodate more ships and more cargo container traffic at their facilities. For example, the increase in vessel size since 2013 – with the introduction of Maersk Line’s Triple E fleet, has caused many shipping ports to invest in dredging channels, purchasing new equipment and constructing new terminals, in order to accommodate their capacity of more than 18,000 TEU.

It is not only international shipping lines and institutional investors that are funding the industry’s steady development, private investors have emerged as keen participants and are playing an increasingly important role in world trade and global economic growth.

 

Shipping Ports, Facilities, Equipment & Infrastructure

Perhaps one of the greatest challenges facing the world’s leading shipping ports, is accommodating the increasing demands of post-panamax container ships that are calling upon, and testing the abilities of, their facilities, equipment, infrastructure and staff. Officials know that to maintain constant economic growth, shipping ports must maintain the steady flow of cargo containers, trucks, trains and container ships.

In a large number of instances, it has been leading container shipping lines and terminal operators who have made the “Lion’s share” of the maritime shipping industry investments needed, to ensure long-term accessibility, efficiency and profitability. That is not to say that private and institutional investors have not contributed. In fact, a number of pension funds have introduced infrastructure investments into their long-term holdings, and are funding growth in emerging markets and developing regions; all across the globe.

Shipping, Cargo and Freight Containers

Bigger shipping vessels and port facilities have grown so that they can facilitate the movement of one thing. Cargo containers. A single post-panamax container ship can unload more than 18,000 TEU. The MSC Oscar for example, can transport 19,122 TEU. That is nearly 40,000 TEU to load and unload. To put this into context, Maersk Line will be likely be operating 20+ of these vessels in the next few years, and will require nearly a million shipping containers to satisfy the requirements of their expanding Triple E fleet of container ships.

The challenge for container shipping lines, after making the billion dollar investments into Triple e vessels, is to have shipping clients occupy each container spot on the ship. At the current container purchase price of $4000 per TEU, this would require either an existing or new investment of US$72 million per ship for container shipping lines. After an investment of $185+ million per Triple E vessel, many industry leaders will need to see some return on investment before introducing additional funding. As you would imagine, this has created opportunities for international investors.

Once a secret investment of institutional and affluent investors, shipping container investments have proven to be an appealing alternative to traditional investments, such as the volatile stock and bond markets. With interest in alternative investments rising steadily since the introduction of the Global Financial Crisis in 2008, investing in shipping containers has emerged as a profitable, low-risk option for private investors.

Container Shipping Vessels

Seemingly leading way for further expansion and investment, the world’s container shipping companies have introduced gargantuan container vessels that can transport more than 20,000 TEU. Albeit they are maritime marvels, they place incredible pressure on port facilities and infrastructure, that will take officials time and investment money to appropriately address.

The intention of companies introducing these gigantic container ships is to benefit from economies of scale, in cooperation with constantly improving operational efficiency, to increase their long-term profits and ensure prosperity for the future. According to analysts, container shipping companies could save billions of dollars per year, with the introduction of these new, more efficient Triple E vessels. The trouble is, the remainder of the shipping industry must keep pace with them.

Although the new post-panamax ships are a boon for the container shipping lines, port and terminal operators have had to invest in extending piers, dredging channels and harbors, and the purchase new equipment; like ship-to-shore cranes. For an industry that has seen its share of obstacles since 2008, meeting these demands has been a challenge. That said, these challenges have opened the door international investors to provide funding, and profit from the industry’s prosperity and powerful growth.

Summary

Just like moving millions of containers takes logistical planning, so does investing to ensure the sector’s prosperity and long-term growth. With the help of private and institutional investors, as well as port and terminal operators, shipping container leaders will continue to deliver the cargo needed to satisfy the rising consumer demand and economic development.

the demand for shipping containers is rising

What Does Rising Profits in Container Shipping Sector Mean?

It seems more commonplace to hear accounts of financial recovery and continued prosperity coming from both established and emerging markets all over the world. This kind of improved economic performance is reassuring to analysts, and gives investors the added confidence they need to pursue investment in foreign marketplaces and business opportunities abroad.

Although rebuilding the international economy has taken some time, the strengthening of industries and infrastructure through investment and improved operational efficiency over the last 7 years, has created a number of profitable investing options for investors and corporations alike. In particular, the investment-community is benefiting from opportunities that invest in the world’s economic growth, and maintain the momentum of prosperity that has powered world trade, for nearly a decade.

Make no mistake, the shipping industry has its critics who routinely challenge the industry’s profitability. Many focus their argument on passing challenges like over-capacity, rate drops and lack of port/infrastructure investing to accommodate the sector’s growth. But, the truth about shipping investments is that it is not only the container ships that are getting bigger, container shipping line profits are too. 2013 and 2014 financial results provide us with some great examples.

In the third-quarter of 2014 Maersk Line recorded a profit of USD $685 million (USD $554 million) and CMA CGM has seen their profits rise by as much as 60 percent in a single quarter. Container lines are not the only ones enjoying prosperity. The GCC had a remarkable year in 2014 as well, with companies like DP World emerging as a fine example of a challenging region that is benefiting from the growth in world trade. Even Drewry says container shipping profits will improve in 2015 and is looking very favorably on the coming year.

All of these rising profits tell me three things. One, over-capacity does not affect demand. Two, shipping ports and operators are making investments into infrastructure and improvements, and three; container freight rates will continue to climb through out 2015. All of this begins to point to an appealing investment opportunity that has the potential to deliver a great investing experience to the investment community.