December 7, 2006 – This blog entry is kind of a part II to my post about global warming opening up new shipping lanes in the Arctic Circle. Wang Shuguang, Director of the State Oceanography Bureau, in China recently stated: “in the past 20 years, the total output value of ocean industry has increased to 327 billion yuan and the annual average growth rate is about 25 percent which is much higher than the average growth rate of the national economy.”
Chen Qingtai, deputy director of the Development and Research Center of the State Council, further supported Shuguang’s assessment of the exciting prospects of China’s oceanographic development by stating that the marine output of China is expected to make up 5 percent of this year’s GDP.
I often receive requests for specific stock selections, and while I’m very confident that many stocks I own will easily return high double-digit returns if not triple-digit returns, I rarely am at liberty to offer specific stock picks for the very simple reason that if I gave away stock picks for free that returned high double-digit, and even triple-digit returns, my clients would undoubtedly be miffed. Secondly, our just launched online campus, is designed specifically to teach people how to uncover the best investment opportunities in the world, so all the information necessary to uncover high double-digit and triple-digit winners consistently year after year is contained within our e-learning campus.
Today, I’m going to discuss a couple of compelling shipping opportunities per my comments above. China is a large developing maritime country and has a coast line of more than 18,000 km and over 6,500 islands. Spending considerable time in Asia, including Thailand, Japan, Korea, Malaysia, Singapore, Indonesia, and China, I often come across great opportunities that I know I would not uncover were I not here in Asia.
When it comes to global trade, most people will consider giants such as FedEx, UPS, and DHL but tend to overlook the most dominant industry in global trade — shipping. Most of global goods are shipped by ocean due to the cheaper costs of shipping by ocean freight rather than plane. Half of all trade volume in the U.S. arrives by ship.
In China, there are two dominant players in shipping, both of which offer vibrant investment opportunities. China has exploded from supplying 5.2% of the world’s ships in 2003 to over 16% today. Below is information about two of China’s leading shipping companies:
If the volatility of investing in energy companies makes you nervous, then consider the shipping industry, which is in strong position to capitalize on China’s energy demands. This strategy is akin to owning the pipeline manufacturers and oil refiners of the big oil industry to reduce some of the volatility of investing in the energy industry. China Shipping Development controls over 50% of the domestic coastal oil shipping market and a 23% share of coastal coal shipping. China Shipping Development owns over 400 vessels and with a total carrying capacity of about 8 million DWT (dead weight tonnage), ranking second in China. Its future expansion plans included the recent purchase of eight oil tankers for US$556 million that are expected to be operational sometime between October 2007 and December 2009. China Shipping Development also has an important strategic advantage of being insulated from foreign competition due to the Chinese government’s protectionist policy.
The risk of China Shipping Development is its concentration in coastal oil shipping as its main revenue source, with some diversification into oil ocean transportation and other dry bulk cargo shipment, including coal, ores and fertilizers. Currently, it is restructuring its dry cargo business segment with its parent company China Shipping Group.
Another Chinese shipping company that merits consideration is China Ocean Shipping (Group) Company (COSCO). COSCO is a $17 billion international giant that specializes in shipping and modern logistics. It is more diversified than China Shipping Development, providing services in freight forwarding, shipbuilding, ship repairing, terminal operation, trade, financing, and in the real estate and IT industry. COSCO operates a merchant fleet of 600 vessels with total carrying capacity of up to 35 million DWT.
In fact, Asia as a region, will lead the world for the next decade in maritime trade. Asia supplies 50% of the world’s cargo ships, accounts for 40% of the world’s shipping tonnage, and 36% of the world’s top 20 container lines are Asian. Besides China, Singapore is making a serious push towards becoming a world leader in maritime trade. In Thailand, Precious Shipping Thailand and Thoresan Thai Agencies merit a look as well. However, the most compelling, I believe, are the two Chinese companies discussed above.
As far as when would be the best time to consider investing in these two companies? Read up on the Baltic Dry Index for guidance.
J.S. Kim is the founder and Managing Director of maalamalama, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.
