Investing In Ships: The Why And The How

Shipping is integral to trade and the world’s economy. Iron ore, crude oil, and coal are the most frequently shipped commodities, with China receiving over 80% of the volume shipped by sea over the past ten years. The industry continues to grow, as cargo is sent from and received in markets around the world.

Investors are noticing price increases in most asset classes, and the upward trend shows no signs of stopping. Property, bonds, and stocks are significantly overvalued. Shipping is a great diversification tool, as it’s not linked to other asset classes. With an investment in ships, including those found on http://www.nautisnp.com/sea-rivers-ships, it’s possible to improve your portfolio’s returns while managing risk.

Commercial vessels are now required to burn low-sulfur fuel amid tightening environmental standards, which has driven an increase in fuel prices. Industry analysts are predicting further increases for this year and beyond, as demand increases, and the supply chain continues to recover from the pandemic’s effects. Disruptions are lingering, though, and they’re driving up freight rates. To help potential investors capitalize on these increases, we will discuss the benefits of investing in ships as well as some alternatives to owning a vessel.

Why Buy a Ship?

When investors get into the shipping industry, transparency is one of the biggest benefits. Unlike ETFs, which are explained below, investing in a ship gives one something tangible. An investor can always track their ship’s movements, and they will receive reports before and during their term. When they work with knowledgeable brokers, investors are guaranteed to find opportunities that will stand up to analysis and endure market fluctuations.

Getting Into the Shipping Industry

An investment in the global shipping industry is a wise decision. As the world’s economy rebounds, consumers are spending more—and the trend is likely to continue. Logistics companies are ready for the challenges associated with the movement of goods, and maritime shipping is becoming a crucial part of the sector.

While the industry endured tough times during the economic downturn of 2008, as well as a short recovery period, persistent supply chain problems have affected performance. Freight volumes are expected to stabilize as demand from emerging and existing markets increases. Additionally, industrial consolidation is expected to reduce competition, improving profitability for investors.

Is Owning a Ship Profitable?

As freight rates keep increasing, shipping lines will make more than $100 billion this year. That’s several times more than they made in 2019, and it’s almost as much as tech giant Apple makes in one fiscal year. There’s never been a better time to get into the shipping industry, and today’s investors have options. Whether you’re purchasing a ship or taking advantage of one of the investment strategies listed below, maritime shipping is a good sector to focus on.

ETFs

An ETF or exchange-traded fund is the simplest way to get into the global shipping industry, and it provides diverse, yet relatively secure exposure. There are a couple of ETFs to consider:

• BDRY or Breakwave Dry Bulk Shipping. This dry bulk shipping-focused holds futures contracts, allowing potential investors to gain direct exposure without the expense and hassle of owning a container ship. In BDRY, it’s possible to settle an existing contract in cash while buying the next quarter’s contract, minimizing the effects of the rolling position.
• Invesco Shipping. Known on the New York Stock Exchange as SEA, the Invesco Shipping ETF tracks various shipping stocks grouped by yield and market capitalization. Based on Dow Jones’ Global Shipping Index, which tracks the performance of global shipping companies that pay high dividends. SEA invests 90% of its assets in indexed depositary receipts and stocks.

By investing in a shipping ETF, one can gain exposure to the industry while balancing risk with reward.

Individual Stocks

The purchase of individual stocks is another way to invest in the shipping industry. There are over a dozen stocks, most of which have limited liquidity and a low market cap. Other than diminished liquidity, other disadvantages include management issues and a high risk of dilution. Furthermore, freight futures and rates aren’t tied to equity markets.

FFAs

Forward freight agreements or FFAs are another way to invest in ships. An FFA is a financial contract that allows investors, charterers, and ship owners to protect themselves from significant increases and decreases in freight rates while retaining the right to sell or buy prices in the future.

Forward freight agreements are bought and sold from one principal to another, but they are also available through clearinghouses. The FFA market is a tough nut to crack; there are numerous barriers to entry and high specialization is required for proper tracking.

Which Factors Affect Shipping Investors?

As in other industries, there are a few factors determining the success and failure of shipping investments.

• Supply. There are only a limited number of vessels that can transport raw materials and finished goods.
• Demand. Companies all over the world need grains, coal, iron ore, oil, and other goods, which are the shipping industry’s most popular commodities. Asian countries, especially China, are responsible for most demand. An investment in the shipping industry is an investment in Asian trade.
• Cost. The expenses associated with vessel operation, including interest on debt and fuel costs, are significant.

It’s crucial for investors to think of these factors when getting into the industry. While a rebounding index may indicate lower supply and increasing demand, benefits may be offset by rising fuel prices. Futures investments provide high correlation while bypassing most of the pitfalls of vessel ownership, including high commissions, low utilization, and operational risk.

Invest in Ships Without Owning Them

The world’s economy is powered by the shipping industry. While it has struggled over the past few years, like many other sectors, we’re seeing a gradual recovery. Investments in bulk shipping may work to improve a portfolio’s returns because of the sector’s lack of correlation and the industry’s cyclical nature. All asset classes are getting more expensive by the day, but the shipping sector is a notable exception.