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Shipping & Logistic Industry - SonicShares' global shipping ETF has returned 13% to investors

Publish date: Wed, 20 Oct 2021, 07:29 PM

Ref: https://www.businessinsider.com/supply-chain-crisis-investing-strategy-etf-shipping-outlook-paul-somma-2021-10


Below is the arcticle from our Premium Business Insider Account. 


  • In its first 2 months, SonicShares' global shipping ETF has returned 13% to investors, well above the broader stock market.


  • The founder believes the supply chain crisis will last until 2023, but the opportunities for investor will last well beyond then.


  • He breaks down the 4 key drivers of the crisis and 2 ways investors can capitalize on the chaos.


Within two months of launching,  SonicShares pure-play global shipping exchange-traded fund BOAT  accumulated $11 million assets under management and returned 13% to investors. 


The benchmark indices have gotten a boost this month from robust quarterly earnings, but are a little way off this year's record highs, down to concern over the potential default of  Chinese property company Evergrande, the impasse over the US government borrowing limit, the global supply chain crisis and surging inflation.


With the worst of the Covid-19 pandemic behind it, global economic activity has roared back. And it's been especially noticeable in the shipping market, where pent-up demand for raw materials - and the containers that move them - has sent the cost of everything from copper, to crude oil, to freight rates through the roof and created huge bottlenecks at ports and warehouses everywhere. 


Enter SonicShares' BOAT exchange-traded fund, thanks to its exposure to container shipping companies, dry bulk carriers and tankers, it's easily beaten the broader market.


"To some extent, we feared that we had missed the opportunity not appreciating how the cascading sequence of events would culminate in the shipping crisis that we're in now," said Paul Somma, the founder of SonicShares, describing how they feared they had missed out by not launching the ETF prior to the Suez Canal crisis in March.


But many supply chain experts say the extensive bottlenecks in shipping and other areas of logistics won't ease until as late as 2024.


"It's our view that the shipping companies and shipping company investors will benefit long after the shipping crisis is resolved," Somma said.


What's causing the crisis?


To understand what's happening, investors must picture the supply chain as a web of connections of container ships, trucks, warehouses, and roads and railroads to get goods to consumers, rather than a linear chain, Somma said. 

"The whole system has to work together, and it's almost like the relay race, where the baton is passed from one runner to the other," Somma said. " It was all working kind of fine until COVID-19."



In some cases, companies are even choosing to charter their own planes and boats to get products to customers.


There are four major problems behind the crisis and none of them can be solved overnight, Somma said. 


1) Skyrocketing container prices and overloaded ports

The containers that shipping companies use to move goods are the first pinch-point. In recent months, a shortage of containers has seen rates surge, as companies compete to get products on the water.


When lockdowns took effect last year in large parts of the world, thousands of empty containers built up at inland depots as well as cargo ports. These would normally have been shipped back to the big exporters in Asia.


Container rates are finally starting to decline, but are still above pre-pandemic levels, according to the Financial Times. The challenge is now for the ports, which are facing a massive backlog of ships waiting to be unloaded.


2) Truckers and freight train operators shortage


The problem doesn't stop once a container makes it to port and is unloaded off the ship. There's also a drastic shortage of truckers and freight operators, Somma said, meaning another bottleneck in transporting goods to warehouses, whether that's by road or by rail.


3) Chassis shortage


Even if a trucker is available to transport the goods, they will likely come up against a shortage of chassis, which are used to transport ocean containers by road.


"Even if you have the port going 24/7 and even if you were able to hire and train the 60,000 truckers that are missing from the current labor force, you still need those chassis and you need them in the right place at the right time," Somma said.


4) Warehouses at capacity


In the best-case scenario, where a shipper has a container that is successfully unloaded at the port, with a chassis and a truck driver that can transport it, there's still the problem of warehouses being at capacity, which circles back to the shortage of truckers to collect the empty containers.


"You could run a port 24/7 and still not have anywhere to put those containers," Somma said. " … That's where the chain comes in. It's almost like the accordion pattern of traffic on the highway. You have one one small issue and it reverberates throughout the system "


Capitalizing on chaos


Somma expects that shipping companies balance sheets and cash flows will look very strong in coming years, because of their ability to secure long-term leases with customers and potentially lock in today's high prices for the next three to five years.


"Everyone is in agreement that the supply chain crisis will last into 2023," Somma said. "But the benefits to the shipping companies will last beyond that."



What shipping/logistics companies you may invest in Malaysia? 



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