Investors Growing Increasingly Fond of Shipping Investments

Over the last half a decade, the decline in global demand has resulted in rising levels of overcapacity in the shipping industry. The Baltic Dry Index, which is used to track daily rates for bulk shippers, fell 41 percent in 2012, representing its worst performance in more than two-and-a-half decades (26 years.) Now though, it would seem that the five years of overcapacity are drawing to an end and global economies are returning to consistent levels of growth. In fact, many observers see demand pushing the shipping industry back towards pre-GFC (Global Financial Crisis) levels.

One industry betting on a full recovery in the shipping industry seems to be private equity. Expecting a return to growth over the long term, and certainly within a three to five year time-frame, private equity investors have been been showing a growing interest in shipping industry investments; particularly over the last few years.

Private equity funds have found it necessary to search for less traditional sectors that are large and have fundamental long-term growth prospects, but are large because of specific factors that are inherently of limited duration.- Wilbur Ross

According to Marine Money, more than $3.5 billion was invested in the global shipping industry in 2013, a significant increase from the $2.7 billion seen in 2012. Billionaire and world renown investor George Soros for one has used his private equity firm - Soros Fund Management, to increase his holdings in six Greek shipping companies, including Baltic Trading, Safe Bulkers and Diana Shipping. Moreover, Asian shipping firms are experiencing a rise in interest from American private equity funds, as well.

Fund managers, sensing opportunities in the market, have grown more and more interested in shipping, and ship owners, facing tighter and tighter credit markets, have increasingly welcomed private equity as a new source of badly needed capital ... Although private equity funds vary greatly in size and investment objectives, most of those drawn to shipping have been attracted by the opportunity to earn high returns on relatively short and medium-term investments.- Shipping Specialist Watson, Farley and Williams (Maritime Briefing)

While things are very likely to continue to improve, the international shipping industry has not completely emerged from troubled waters yet. With that being said, there is a general consensus in the sector that the industry has already reached the bottom and, with regards to asset values in terms of the number of ships; the industry is experiencing record lows. This will encourage shipping industry leaders to form alliances, find operational efficiency and move into the up cycle.