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Ketan Patel
By Ketan Patel Associate Fund Manager September 2015
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Summary In this edition of our Amity Insight series, we focus on the dynamics of shipping. It is the first part of two insights on transportation; the second one will review aviation and is due out early next year. Despite its omnipresence, modern shipping remains practically invisible, notwithstanding the vast bulk of our manufactured goods and raw materials relying on ships plying the ocean’s invisible yet ancient trade routes. Shipping meets approximately 85-90% of the global demand for transport, with more than 55,000 merchant ships, registered in 150 nations, carrying and transporting 8 billion tonnes of cargo annually. The role of the humble container has been pivotal in transforming global trade via the standardisation and automation of cargo handling; this has enabled China, through heavy investment in technology and infrastructure, to host seven out of ten of the largest sea-ports in the world by volume.

Shipping is the story of China

Shipping is the story of China As a house with a long-term investment philosophy and a bias towards Asia, shipping represents an interesting proxy. Modern shipping is in effect the story of the rise of Asia, especially China, and the relative decline of the US. The main trade routes by volume give expression to this transition: the greatest volume of cargo is shipped from Asia to the US and Western Europe; the least from North America to Asia. 16 of the world’s top 20 ports are in Asia and China on its own represents 60% of global seaborne trade growth. China has taken a leading role in the commissioning on new tonnage and also in the expansion of the Panama Canal, where it accounts for 25% of all traffic.

Issues for responsible investors

Issues for responsible investors The long-term investment case is therefore clear: shipping is a play on global commerce; it will remain at the epicentre of human economic activity in several guises; container, dry-bulk, tankers and the specialist LNG/LPG gas fleet. However, shipping raises several material risks for responsible investors which this Insight draws attention to. Some of these are deeply complex such as piracy and trafficking, others such as climate change and pollution are now being addressed by the IMO (International Maritime Organisation) via technology and alternative fuel mixes. The issue of end of life ship breaking, labour & employment and safety will also have to be addressed to ensure the industry can continue to deliver long-term sustainable returns.

View from the top

View from the top In this Insight, we have sought to highlight how shipping not only lies at the very heart of global trade, with up to 90% of cargo by volume traded by sea, but also provides investors with an impressively wide and deep investment value chain. This comprises shipbuilders, ports management, logistics companies, shipping lines, brokers and support vessel companies –a breadth dew other sectors and industries can emulate.

As a house, some areas of the sector are not investible on ethical grounds (defence) and others, despite the size of the fleet, have little or no investment scale (fishing and ferries). Other specialist areas such as cruising remain vibrant and growing. We remain positive on the wider opportunities the shipping value chain presents. It plays well to our long-term investment themes and to our strong bias towards Asia. At every point shipping is represented by quality engineering, financial services and support-service companies where value can be found. The ethical issues are not simple, but overall we believe shipping is one to watch and is well piloted for investment opportunities.

Download PDF: 'Shipping: Piloting Global Trade'

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