If I have USD 100 million to invest-should I invest in the container sector?

• Main Author: Kua, June Qinfang
• Other Authors: Kenneth Tan
• Format: Final Year Project
• Language: English
• Published: 2016
• Subjects: DRNTU::Engineering
• Online Access: http://hdl.handle.net/10356/67880
• Institution: Nanyang Technological University

This paper aims to provide short-term investment strategies in a Container market with USD $100million for a period of 5 years. A 4-stage framework was designed to facilitate investment planning in the container market. Firstly, a theoretical analysis was conducted to forecast the future outlook of the container market. Economic growth, world fleet size, freight rate, bunker cost and ship acquisition prices was identified from past research papers, interviews and questionnaire to affect investor’s decision to venture into the market. The overall market outlook is bleak due to the overcapacity, slow global economic growth and fierce cost competition in the market. However, after detailed analysis of each factor, there were some bright spots for investments. Intra-Asia and Transpacific trade was identified to experience growth for the next 5 years. Statistics has also shown that the average vessel acquisition price in 2016 is the lowest in 5 years for most vessel sizes, which is a good opportunity to make an investment, as the capital repayment is lower. However, interviewees have also mentioned that a strong cash flow is crucial in a bad market therefore only investors with strong financial power are encouraged to invest. Secondly, ten scenarios were formulated based on the different type of vessel size, investment and service. Thirdly, sensitivity analysis of net present value was done for each scenario. There are only two scenarios that will provide a decent return to the investor in the current market condition. The best investment option is to purchase a 8,800TEUs secondhand vessel and charter it out. The other option is to time charter a 4,400TEUs vessel to operate. The other scenarios requires a weighted average cost of capital (WACC) of less than 5% or an unobtainable market TCE. Last but not least, historical profitability ratios of pure container companies and shipping companies were analyzed. It was concluded that container market is a market that provides higher returns to its investor. However, it comes with a cost, there is a substantial amount of risk when investing in the container market. This paper concludes that if the investor has deep pockets and the good foresight to manage the risk in the market, the investment in two secondhand Super-Post Panamax vessels is a profitable one.