The Mechanics of Shipping Container Investments

Shipping rates are on the decline and there has been a 54% drop in the past 3 months. The Baltic Dry Index now suggests that there is some disconnect in the demand and supply in the shipping industry. The thumb rule is that when the price of any product moves up fast, there will be certain dislocations in the market that offer a good opportunity for making profits. Though shipping rates are plummeting there is one segment of the shipping industry that has benefited and posted much higher profits than it had during the economic peak prior to 2008.

The Demand and Supply Game

Containership activity is up substantially. This has occurred because though the container rates are down and container shipping volumes have risen, the supply of containers has not proportionately grown. This, in turn has resulted in a rise in container leasing rates.  Not many realize this, but intermodal containers or standardized shipping containers have had an immense impact on the lives of people.

Before these entered the shipping space, it would take a week to unload a fully-packed cargo ship. Today, it takes less than 48 hours for a crew of 6 to unload 3,000 containers. It goes without saying that space on the ship is used more efficiently due to the standard shape and size of these containers. Approximately 90% of goods are shipped in them and manufacturing and global trade relies very heavily on containers. Though many shipping companies own them, they are dependent on container leasing companies for a large percentage of the supply.

Smart Investing

The demand easily exceeds the supply which consequently makes well-planned shipping container investments a lucrative proposition. The shipping industry is in fleet-expansion mode and veering away from investing in assets like shipping containers. Before 2009, shipping lines were very aggressively procuring these assets but the economic downturn changed all that. Today the focus is on lean operations and leasing containers is the preferred alternative.

Industry analysts have projected that investors have plenty of reasons to consider investing in containers. Growth and prosperity in trade across the world benefits those who make the best shipping container investments. To date in 2014, the containerized system is made up of more than 27 million TEU and the investment community can easily expect the containerized transportation industry to continue being a key contributor to growth in China and globally as well.  

The Transformation

Local markets and economies in China have been transformed with easier access to the international economy. This transformation process has been boosted with newer supply chains. With every passing year, the global economy becomes increasingly integrated. There have been some evident changes in political and economic ideologies. Standardization and reduction in regulatory barriers has added impetus to the mechanics of trade.

All these factors have led to a rise in demand for leased containers. These investments offer steady returns and transacting with a reliable company makes it a low-risk proposition. Investors can start out with acquiring 5-10 containers, sign an agreement with a well-established container leasing company and then sit back and enjoy steady returns for years to come.

Winds of Change in The Container Leasing Industry

Since 2013, shipping and railroad volumes have steadily been on the rise and the projection is that this trend will now continue, albeit at a slow and steady pace. Over the past one year there has been a consistent growth in demand for finished & raw goods from the emerging economies like China and other Asian countries. This has also resulted in an increase in demand for global transportation, a large percentage of which takes place via sea routes.

Slow and Steady

Shipping companies are still a little wary about increasing inventory and adding to operational costs and are now relaying largely on container leasing companies like Pacific Tycoon for transporting everything from perishables to iron ore. What is even more notable is the fact that they are now finding this more economical and convenient as they don’t have to worry about maintenance and upkeep of the containers. Today, things have reached such a stage where the supply of containers is very tight.

A Surging Current

This year, that shortage is going to be even greater. This trend might just turn into more of a longer-play opportunity. This also means that there is an opening to make a lucrative investment in this space. The trade agreements that had been brokered under Clinton had given a boost to the Chinese economy in the 1900’s and that current never abated. In January 2014, China’s trade performance touched a 6-month high. There was a 10.6% rise in total exports in China, in comparison to January 2013.

The country is the largest exporter in the world. Now the economies in developed countries are also on a rebound, which will fuel the country’s exports even further. Premier Li Keqiang has also now said that China will be accelerating the free-trade agreement with Australia. This too adds impetus to the overall growth that is taking place in the country.

The Horizon and Beyond

As trade increases, shipping companies will have to press more vessels into service and there will be a surge in the demand for containers. Container leasing companies like Pacific Tycoon are in for a busy and bright future. They are also sprucing-up their business models and making them more efficient. This helps in maintaining timelines and meeting increasing demands.  Since the demand still exceeds supply, they are also able to raise their rates and investors end up benefiting from the changing global and national economy.