Tag Archives: Global Economy

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.

Shipping ports have invested in dredging channels, new equipment & terminals to host bigger ships Click To Tweet

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.

To maintain economic growth ports must ensure a steady flow of containers, trucks, trains & ships Click To Tweet

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.

Shipping container investments have proven to be a great alternative to traditional investments Click To Tweet

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.

Triple E cargo vessels could save container shipping companies billions of dollars each year Click To Tweet

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.

container ship at abu dhabi ports

2015 Will See an Increase in Demand For Shipping Containers

A recent research study conducted by Barclays suggests that the recent drop in oil prices is boosting consumer spending, and in turn increasing the United States’ demand for Chinese imports. Based on the positive data presented in their report, the investment bank has increased its container volume growth forecast (for the U.S. market) by nearly 1 percent, raising it to 5.4 percent for 2015. From a global perspective, world container trade reached an estimated 152 million TEU in 2014, and is forecast to grow 6.5 percent over the next two years.

A Barclays research study suggests that the recent drop in oil prices is increasing U.S demand for Chinese imports Click To Tweet

Brent crude oil prices averaged $110 per barrel From January 2014 through September 2014, and then values very quickly plummeted to approximately $40 per barrel. Looking ahead throughout 2015, Barclays predicts that oil will maintain an average price of $44 per barrel. This is likely to translate into bigger profits for leading container shipping lines, especially those who have invested in Triple E vessels.

For every $10 drop in the per barrel price of oil there will be $1.1 billion in consumer spending on Chinese exports Click To Tweet

According to theBarklay’s sensitivity analysis, this improvement suggests a [potential] increase in China’s exports to the United States of nearly 2 percent. Offering a number-figure for the growth, industry analysts forecast that for every $10 decline in the (per barrel) price of oil, there will be an additional $1.1 billion in consumer spending on Chinese exports.

We expect a potential positive impact of lower oil prices on trade volumes due to higher discretionary consumer income. For example, the Barclays U.S. Equities Research team estimates that a 20 percent decline in fuel prices could increase U.S. consumption by $70 billion.- Barclays

Barclays recognizes that lower oil prices are having a positive impact on consumer demand and the global container shipping industry is experiencing a boost in profitability. Barclays’ analysts say they expect the economic prosperity and investment in global trade to continue into 2016 and throughout 2017, resulting in a 5.2 percent year-over-year improvement in container demand.

Barclays' analysts are forecasting a 5.2 percent year-over-year increase in worldwide demand for shipping containers. Click To Tweet

Trade to the United States is not the only international destination to increase their demand for Chinese goods. Trade between China and Iran (for example) has been growing at a rate of nearly 40 percent per year since 2012, driven by rapidly rising demand from consumers. The import of household goods from Asia, mainly into Iran and UAE, has caused container volumes on Asia to Middle East and Asia to the Indian subcontinent trade routes, to experience a significant increase. According to analysts, this upward trend in the demand for shipping containers will continue at a rate of 7.4 percent over the next three years, and easily outperform Barclays’ global container growth forecast of 5.2 percent.