Most consumers are shopping and spending online with Black Friday-advertised sales hitting email inboxes and local television stations.
Amazon (NASDAQ:AMZN) of course keeps chugging along, but none of the add-to-cart clicks will mean anything if the items aren’t there in the warehouses to ship.
Much of the stuff that we all buy is either assembled or originated in Asia and particularly in China. And from factories in Shenzhen, Chengdu and beyond, these goods need to make their way through to export warehouses, including those owned and run by Prologis (NYSE:PLD).
This leading warehouse/logistic company keeps these warehouses humming along and leases paid, which feeds a dividend yield of 2.3%.
Prologis is also on the other end of the crossing of the Pacific with its facilities to accept goods as they are readied for further transport throughout the U.S.
The company continues to be my go-to for warehouses and logistics and keeps performing for shareholders. Over the trailing five years, the stock has returned 168.3%, including the year to date return of 14.6%.
But there’s more to know about the shipping market, especially what happened between the warehouses in China and ports in the U.S.
Shipping Isn’t Free
Containers are what goods come in when they arrive in U.S. ports. And getting them here requires a very important and growing collection of container and shipping companies.
One of the leading indexes for shipping across the Pacific from Asia to the U.S. is the Shanghai Shipping Exchange Index, which tracks pricing from the shipping exchange where companies and brokers do their battles for access to ships and containers to move the goods.
Shanghai Shipping Exchange Index – Source: Bloomberg Finance, L.P.
After a bit of a surge earlier this year, the market really went south as COVID-19 took hold on both factories in China and markets in the U.S. But after sliding in demand into May, demand has been surging. This is causing shipping rates to soar, with the Shanghai Index climbing to date by 37.3%.
Another good indicator of all Asian-sourced shipments headed into the U.S. market is the Port of Los Angeles Inbound Containers Index. This tracks the number of standard twenty-foot equivalent units (TEUs).
Port of Los Angeles Inbound Containers Index – Source: Bloomberg Finance, L.P.
The number of TEUs has been soaring since March, climbing through to the most recent data by 130.0%.
This is all very good news for shipping companies. And one of my favorites is a company that doesn’t operate ships but instead owns and leases them out to operating companies.
Think of it as a landlord of the high seas. It leases and collects rent on ships and does so with little to no operating expenses for the ships.
Seaspan was acquired by an interesting investment company called Atlas Corporation (NYSE:ATCO) that also owns APR Energy, which owns and provides larger scale clean power generating mobile power facilities. These are used for both critical backup for all sorts of government and industrial customers and works well on its own.
Atlas Corporation (ATCO) – Source: Bloomberg Finance, L.P.
Seaspan’s ships are running full out right now with 127 units that are young at an average age of seven years and are currently leased under lucrative and dependable contracts by some of the leading shipping companies eager for needed capabilities to ship and deliver goods.
Revenue is soaring right now for ATCO with the current quarter showing a gain of 36.6% following the prior quarter’s surge of 32.1%. The holding company is run really efficiently, and this shows up in operating margins running at 60.7%.
It continues to be shareholder-focused with a dividend yielding 4.3%.
ATCO also has a Seaspan-backed preferred stock that works with an income focus – the Series H Preferred (ATCO.PH), CUSIP#81254U304. It pays a fixed and dependable quarterly distribution that yields 7.9%.
The Value of the Box
Remember as a kid when a big box showed up at the house? You might have cared about what was inside, but it was the box that held a lot more attention. A fort? Something to be transformed into a plane or a ship or even a playhouse… Boxes are great for all of that.
But TEUs, the big boxes of big boxes, are what makes shipping work. And they are not only surging in demand, they are both in shortage in number and out of place right now.
The major surge in shipping from Asia to the U.S. has led to containers getting stuck in and around ports. There hasn’t been much of a need to use them for goods heading to Asia. And in turn, shipping companies are now short TEUs in Asian ports.
This is leading to two things. First, some shipping companies are shipping the boxes empty just to get them back to Asia where they are short in supply. And second, those with container boxes are leasing them out to ever more eager customers.
This problem led me to another problem-solution company in Triton International (NYSE:TRTN). This is the leader in TEUs and leases them out to shipping companies.
Triton International (TRTN) – Source: Bloomberg Finance, L.P.
This was a bit of a sleepy company until more recently. And while the stock is getting more attention in the market, it is quite cheap at only 1.6 times its intrinsic value of all of its boxes and other net assets.
Yielding a nice 5.0%, it proves that boxes can have a lot more value than what’s inside.
On the date of publication, Neil George did not hold (either directly or indirectly) any positions in the securities mentioned in this article.