The global shipping industry is responsible for nearly 90% of the world’s trade – with over a million workers operating 50,000 merchant ships and other shipping industry vehicles in over 150 different nations. These workers, ships and companies generate close to a half-trillion dollars every year for the global economy, making it a great option for investors. Yet, breaking into the investment sphere of the shipping industry–the lifeblood of the international economy–is easier said than done.
If you are new to the shipping industry as a viable investment opportunity, it can be challenging to know which type of plan will have the best return. With many people, and especially young people, recognizing the need to invest in order to reach the long-term goals they want to accomplish, fortunately there are many great options out there for amateur investors. By learning more about the global shipping sector and the opportunities therein, you can gain the knowledge you need to make wise investments in the industry that will lead to personal success.
Why Invest in Global Shipping?
While the global shipping sector took a hit during the 2008-09 financial crisis, the industry recovered over the five-year period between 2010 and 2015. Now, there is a great deal of pressure in terms of supply and demand of shipping vehicles, which has resulted in newly developed and emerging markets on a global scale in shipping. As the global economy continues to recover and grow, freight volumes are expected to stabilize, which will lead to increased demand. However, it is important to be cautious when making any investment in shipping, because the industry has struggled in the past and has even caused several high-profile companies to claim bankruptcy.
Before you invest, there are three main factors to consider:
1. Supply – This is the number of vessels that are currently operating in global markets, which is affected by both new builds and vessels being retired
2. Demand – This is driven by the global economic growth rate and comes from end market consumers
3. Costs – This is the cost of operating a transport vessel, along with long-term costs (like the cost of debt from interest payments and bunker fuel costs)
Two Investment Strategies to Get You Started
If you are looking to build an investment portfolio from the shipping industry, there are several ways to start. One common method is through exchange-traded funds (ETFs), which some claim are the easiest way to invest in the global shipping sector. While no investment strategy is foolproof, ETFs offer a diversified exposure in a single security, which make them a safer bet. The most popular ETF in shipping is the Guggenheim Shipping ETF—consisting of nearly $115 million in total assets.
A second investment strategy in the shipping industry is to choose individual stocks. Selecting a common stock or an American depository receipt (ADR) is a wise way to stay highly in-tune with the supply and demand of a certain sector of the industry. The most popular individual shipping stocks include Diana Shipping Inc. (DSX), AP Moeller-Maersk (AMKBF) and DryShips (DRYS). Watch them closely, and you may just come out on top. For interested investors, the global shipping sector offers a great opportunity to tap into a booming industry with an international market.