2 Stocks Making Waves In The Global Global Shipping PhenomenonOct 23, 2021
If you haven't been paying attention lately, inflation is a massive problem in the global economy. It's difficult to pinpoint the root issue but it is a combination of commodity prices, supply chain issues, demand spikes, etc.
However, the one that flies most under the radar is shipping costs.
In the US, these costs are extremely visible because most of the goods consumed are imported. Therefore the subsequent rise in shipping costs often get passed onto the end consumer. When looking further into the shipping costs, we see that in the last year alone, shipping from China to the US has risen over 500%. This means that in today's prices, it costs roughly $20,000 for one shipping container on a route from China to New York! As a massive importer of Chinese goods, this leaves the American consumer highly susceptible to this increase in shipping costs.
While this is becoming a massive problem within itself, as investors, we're always trying to smell out an opportunity. And in this case, there's a few stocks with opportunity for massive upside potential!
And guess what? There's someone very famous who is already in on it too.
His name: Michael Burry.
More on his take:
Does this name sound familiar? If not, he is the investor who has is famous for shorting the economy before the great recession in 07/08. His short is so famous they ended up making the movie, "The Big Short" after his move. And guess what? This is his next bet.
Our Investment Thesis:
So what is the opportunity?
We're making investments into the shipping companies themselves!
As the primary beneficiaries of the increase in cost, these companies are standing by, looking at massive revenue increases almost overnight at nearly the same margins. While a lot of these companies have already benefitted to date (see their stock prices below), we believe this trend will continue.
Why? Largely because we do not believe shipping costs will drop anytime soon. This is due to two main reasons:
- The first is due to the way shipping contracts are structured. They're often locked in at annual rates and many suppliers have no choice but to accept them. Additionally, with the number of contracts signed, it looks like they also believe that shipping costs are only going to rise. By locking in contracts now, they hedge any future increase in cost until the contract is up!
- The second reason is due to the brands themselves. During a recent interview with the CEO of Proctor & Gamble (the company behind brands such as Downy, Gain, Tide, Febreze, and Dawn), the CEO alluded to the recent increases in shipping costs. He very calmly stated that he fully anticipates on passing these costs down to the consumer and absorbing next to no losses. Until brands start changing their mentality around, or consumers stop buying their products, they're going to be in no position to deny or negotiate on costs with the shipping companies.
The key takeaway here is that we, nor Michael, believe shipping costs will be decreasing any time soon. Therefore, as we stated above, we believe these companies below will be prime beneficiaries and experience continued stock appreciation!
So which stocks are they?
1) Genco Shipping & Trading Limited (GNK)
The first stock is Genco. Genco Shipping & Trading Limited is a leading provider of international seaborne dry-bulk transportation services. Their stock is up over 80% this year but we believe this has potential to keep running up! While the upside is high here, this pick does come with a lot of risk!