Something big is coming our way: container ships. As the Covid-19 lockdowns end around the world and economies unfreeze, it is unleashing a huge demand wave.
Consumers are flush with cash from stimulus payments and because supply was limited for most of the past year, pent-up demand is being unleashed on both goods and services.
The Port of Los Angeles, the largest container port in the Western hemisphere, reported a 53% surge in the number of shipping containers it has unloaded (imports) off ships year to date (exported containers are down 25%). The Port said it processed 799,315 twenty-foot equivalent units in February, a 47% increase from last year. It also noted:
"It was the seventh consecutive month of year-over-year increases and the strongest February in the Port's 114-year history. One year ago, global trade slowed to a crawl as the COVID-19 pandemic first hit China and then spread worldwide, Today, we are in the seventh month of an unparalleled import surge, driven by unprecedented demands by American consumers."
Container Day rates have quadrupled from 2019.
Atlas and Fairfax
One of my favorite stocks that will benefit from the container ship trend is Atlas Corp. (ATCO, Financial), which is majority controlled by guru Prem Watsa (Trades, Portfolio). Watsa's Fairfax Financial (TSX:FFH, Financial) owns over 40% of the company's shares outstanding.
Atlas controls one of the largest container ship leasors in the world, Seaspan Corp. It leases ships to container shipping companies around the globe.
The stock is up over 70% for the year and the GF Value is showing it is overvalued, but I think it can still double in the next several years before this cycle matures.
The company also pays a decent 3.6% dividend. Atlas ships are usually locked up in long-term contracts, so the stock is slower to react both on the upside as well as on the downside as compared to container lines with more ships exposed to the spot market. Current tight capacity conditions, however, are expected to remain well into 2022.
An even safer way to play Atlas and container ships is to buy Fairfax, which still remains undervalued. I covered Fairfax Financials several months ago. It has performed well since then, but I think it has still a long way to go.
A final caveat is shipping stocks are not buy-and-hold investments. They are very cyclical, so it is important to keep a close eye on them since changes can send the share price lower.
Disclosure: The author owns shares of Atlas and Fairfax Financial.
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