Investing in shipping containers has become an attractive alternative investment option for many investors in recent years. Shipping containers are large standardized metal boxes used to transport freight on ships, trains and trucks. With the growth of international trade and global supply chains, the demand for shipping containers is huge. This article will analyze the benefits and risks of investing in shipping container companies.
High demand and steady cash flows make shipping container assets desirable
The shipping container leasing business provides steady revenue streams for investors. With over 90% of world trade carried by sea, the need for containers is always high. Container leasing companies earn income by leasing out their container fleet to shippers and carriers. This generates steady cash flows as the containers are leased out for years at a time. The built-in demand makes containers a resilient asset class.
Diversification and inflation hedge characteristics
Investing in shipping containers provides portfolio diversification for investors because the returns are not closely correlated with stocks and bonds. Container investments have an inflation-hedge component as lease rates typically rise with inflation. With fears of rising inflation globally, containers offer an attractive way to diversify as a hard asset.
Potential for high returns in a growing market
The shipping container leasing industry is projected to grow steadily in the coming years. With high barrier to entry for new players, existing container lessors can benefit from this growth. Investors can earn high returns from capital appreciation of containers as utilization and lease rates improve in a growing market.
Complex operations and management requirements
Managing international fleets of shipping containers is complex and requires significant expertise. Investors need specialized capabilities in operations, logistics, depot management, maintenance, customer service etc. Lack of operational experience can expose investors to risks.
High operating leverage magnifies volatility of returns
The container leasing business has high fixed operating costs related to fleet ownership and overhead expenses. This operating leverage causes volatility in returns. In downturns, the fixed costs remain while lease revenue falls sharply, creating risk of losses.
In conclusion, investing in shipping container companies provides portfolio diversification and potential for attractive returns. However, investors need to carefully evaluate risks related to operations, cyclicality and capital intensity of the sector.