By: Tim Fortier — October 13, 2021
News Flash: Barbie and Ken May Be Stranded at Sea
One kid has visions of playing with the newest Barbie Role Model doll made into a likeness of four-time tennis Grand Slam winner, Naomi Osaka. Or there’s always Ken and his flashy sports car.
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Another can’t wait to add Thomas the Tank Engine’s new friends to his or her collection like high-speed train Kana, or trouble-maker Diesel.
And the wife is pretty sure this is the year she’s going to find a new candy-apple red Jeep Cherokee in the driveway.
Well, if you don’t start shopping today, you’re not going to want to see the look on your family’s faces.
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Container Shortages, Scarce Shelves
That’s because Mattel’s China-manufactured Barbie and Thomas the Tank Engine products are likely sitting in some container on an idle ship anchored near a port in China, or either coast of the U.S. The Jeep, meanwhile, is probably chained to an assembly line in Toledo, Ohio, waiting for a computer chip to arrive from Asia.
Although we move goods via trucks, railways, and cargo planes, over 90% of the $14 trillion spent each year is transported via the sea. It’s the cheapest and most efficient way to go from one side of the world to the other, despite the cost of marine fuel at its highest level since 2014.
The majority of products are stacked in thousands and thousands of shipping containers on cargo ships. Shipping containers are an integral link for people, businesses, countries, and markets.
They make it possible for businesses to sell their goods on a scale deemed impossible a century ago. And they’ve allowed for—even spoiled us—by having shelves stocked to the brim in local stores with products from all over the world.
Unfortunately, during the pandemic and the partial recovery that followed, the supply of containers fell well short of demand where and when they were needed most.
That shortage is forcing people to be patient and tolerant of much-sparser inventories than we expect.
According to Container xChange, an online platform based in Germany, 25 million containers are in use worldwide. They make 170 million trips a year and another 55 million when they’re empty on return routes.
The system usually works well but delays in unloading goods have only exacerbated the problem.
Going Nowhere Fast
The largest ports in the US outside Los Angeles had nearly half a million 20-foot shipping containers—or about 12 million metric tons of goods— waiting for spots to open up along the port to dock and unload, according to the Marine Exchange of Southern California.
The port has 19 mega-container ships waiting to dock. The largest is carrying 16,022 20-foot shipping containers.
Ships wait as long as three weeks for cargo to be unloaded. Part of the onus is on the port complex itself. While ports in Europe and Asia run around the clock, San Pedro and Long Beach operate at only 60%-70% of capacity, closing entirely on Sundays.
Now, Mother Nature is messing with the other side of the world. The number of container ships anchored at Yantian Port in Shenzhen, one of the busiest ports in China, jumped to 67, the highest level since August.
Previously impacted by closures due to COVID outbreaks, its container handling operations are being hampered by a string of cyclone alerts.
This is the critical period where US importers build inventory for Christmas shoppers. If that fails to happen soon, expect shortages of popular consumer goods.
Don’t say I didn’t warn you.
What a difference 365 days make. A year ago, the container-shipping industry was barely afloat. Today we’re seeing record-breaking shipping rates.
The average cost of shipping a standard large container (a 40-foot-equivalent unit) has surpassed $10,000, some four times higher than a year ago. The spot price for sending such a box from Shanghai to New York (in 2019, it would have been around $2,500) is closer to $15,000.
And business is booming. In the first seven months of 2021, cargo volumes between Asia and North America rose by 27% compared with pre-pandemic levels, according to BIMCO, a shipowners’ association. In the US, it grew 14% higher in the second quarter of 2021 than in 2019.
Some companies impacted by the hikes in price are resorting to desperate measures. Peloton (PTON), a maker of exercise bikes, is switching to air freight. Under normal circumstances, air transport is 10 to 12 times more expensive than ocean transport.
However, there’s nothing normal about today’s circumstances.
Even Home Depot (HD) and Walmart (WMT) have chartered ships directly.
Others, many others, have simply raised the price on products.
Mark Zandi, the chief economist at Moody’s Analytics, estimated that consumer prices have risen 5.3% in the past year. Transportation costs contributed about 10% of that rise—as if rising commodities prices weren’t pumping up the rate of inflation enough.
The ocean shipping lines are clearly the winners. After a decade of consolidation, a handful of companies dominate key routes. That means generally fewer vessels sailing between ports, leaving cargo owners paying a premium to find space, and holiday shoppers hitting stores sooner than ever.
By the way: If you’re hunting for a specific kind of popular stuffed animal, you may be out of luck.
Gary Grant, a founder of a UK toy shop, was quoted in a Bloomberg article as saying he’s had to stop importing giant teddy bears from China because their retail price would have had to double to add in higher freight costs.
Top-Ranked Shipper to Profit from Demand
With demand for shipping running high, it would seem logical that this is an area to look for investment ideas.
Year to date, the Transportation-Shipping Industry is up 57.34% and is ranked 7 out of 197 by Investors Business Daily.
Ranking the shippers on quality metrics, at the top of the list is Matson, Inc. (symbol MATX, listed on the NYSE), a U.S. owned and operated transport services company headquartered in Honolulu, Hawaii.
Believe it or not, the company traces its roots back to 1882 where Mattson Navigation Company began by serving the needs of the Hawaii islands.
Today, the company provides a vital lifeline to the economies of Hawaii, Alaska, Guam, Micronesia, and the South Pacific and premium, expedited service from China to Southern California.
Earnings, sales, and profit margins are all accelerating in this top-ranked company.
Technically, the stock has recently broken out above a multi-month base near $80 on increasing volume and increasing relative strength.
Put this stock in your portfolio today, and give yourself an early Christmas present.
All the best,
Tim Fortier, Editor