For most of this year, investors have worried about rising inflation as prices for several major commodities rose to levels unseen in years. But thanks in part to China’s recent lockdowns, commodities have cooled off (particularly metals), giving the global economy at least a temporary reprieve from inflation pressure.
One area that hasn’t cooled off, however, is the ocean shipping sector. In fact, it’s heating up due to snarls in the worldwide supply chain. Here we’ll look at why investors should take a closer look at shipping stocks and ETFs while the demand for tanker, container and dry-bulk ships increases.
For the last two months, the world’s busiest ports in China have been a logistical nightmare for shippers. Starting with a lockdown in Shenzhen earlier this spring, then Shanghai and now Beijing, China’s Covid-related restrictions have put an enormous burden on the global supply chain.
The shutdowns could not have happened at a worse time, as war between Russia and Ukraine had already accelerated global inflationary pressures. The congestion in Shanghai for container and bulk shippers has caused ocean and air freight rates to soar. (The Baltic Dry Index, which tracks the cost of moving cargoes by sea, is about double where it was at the start of 2021.)
The Financial Times (FT) recently pointed out that the International Monetary Fund’s estimates of last year’s global freight increases alone “added 1.5 percentage points to this year’s inflation forecasts.”
FT also pointed out that in Shanghai, the average waiting time for import shipping containers is almost two weeks (up 174% from March). Moreover, as more shipping vessels remain backed up, the loading and unloading times have increased. Maritime tracking platform Windward estimates that container ships waiting to unload in China have doubled in the last two months.
This begs the as yet unanswered question, “How much will current port backups and freight increases contribute to future inflation?” Given the added transportation backlogs attributable to the Ukraine/Russia war, it’s probably a safe guess that commodity price inflation will continue well into 2022 as supplies remain tight and ocean shippers are forced to seek longer (and more expensive) trade routes due to port shutdowns and logjams.
My 2 Favorite Shipping ETFs
One way to ride out the anticipated inflation trend is by owning an exchange-traded fund with exposure to the global shipping industry. One ETF worth considering is the SonicShares Global Shipping ETF (BOAT). The fund provides exposure to a global portfolio of companies engaged in water transport, including tankers, dry bulk and container shippers.
Another ETF is the U.S. Global Sea to Sky Cargo ETF (SEA), which is even more comprehensive than BOAT in that it also includes air freight stock exposure. Specifically, the fund’s holdings encompass marine shipping, air freight and courier and port and harbor operating companies of any size across the globe in developed or emerging markets. Be advised that this is a newer fund with less trading history than BOAT, and it’s less actively traded, so it carries a bit more risk.
My Favorite Shipping Stock
Among individual shipping stocks, Grinrod Shipping Holdings (GRIN) is an international shipper focused on transporting minerals, ores, coal and other commodities by sea. The company owns, charters and operates a fleet of dry bulk carriers and owns one medium range tanker and reported record net income last year. The stock’s strength is also a reflection of improving global demand for industrial metals (it typically tracks key metals like steel). Most of Grinrod’s fleet trades on index-linked cargo contracts, short-term time charters or in the spot market, which allows the company to benefit from strong freight rates (as reflected by the recent highs in the Baltic Dry Index discussed earlier in this article). A 7.5% dividend yield is an added bonus.
If you want even more ideas for the best performing precious and industrial metals stocks and ETFs right now, please consider subscribing to my Cabot SX Gold & Metals Advisor, where I regularly provide you with some of the market’s strongest metals and mining stocks/ETFs from both a technical and a fundamental perspective.
Do you own any shipping stocks or ETFs not on this list?