The past 12 months have seen several investments in new container ships. The deals are notable both for the new investors coming into the sector, especially private equity, and for a geographical shift. Much of the new money is coming from Asia-based banks and investors. This follows the shift in shipping over the past 50 years, in which first shipyards, then shipping lines, and now funding shifted to Asia; the industry’s center of gravity is moving east. For example, CIMC, a Chinese shipping group best known as a manufacturer of containers, has agreed to help finance ten new ships for CMA CGM, the world’s third-largest container line.
These moves, and others like them, have left some puzzled. Container-shipping companies continue to make losses. Shipping was one of the sectors worst hit by the crisis and continues to suffer from slowing trade growth and continued glut of supply. In this context, why are ships attractive assets? Why do container lines want them, despite the oversupply? And what is the opportunity for investors?
Larger vessels burn less fuel per container—a main reason why ships have gotten progressively bigger in recent years. Now, even more important, there has been a major shift in ship design. Most ships today are narrow, streamlined vessels designed to travel at 25 knots and compete with air cargo (though few or none currently travel at this top speed, because fuel economy is greater at lower speeds). The newest designs have wider and flatter hulls; critically, they are designed for fuel-economizing speeds of 15 to 18 knots.