 Good day fellow investors. One of the worst sectors that you could have been invested over the last 10 years is shipping. So if you look at the shipping ETF it declined strongly in 2009 then it rebounded a little bit then again down really hardly and then over the last few years it has a little bit up and down but let's say it really capitulated as it fell another 40%. So it's a terrible, terrible situation. Most investors lost big money in the shipping area. Banks have abandoned it. Those have fired the shipping analysts which means that nobody really cares about shipping anymore. Really a terrible scenario. Perhaps the baddest, the bottomest, the worst impossible investment that you could look at now but on the other hand without shipping there's no oil, there's no LNG, there's no containers, there's no bulk, there's no iron ore, there's no nothing, there's no life. So there will be shipping, there will always be shipping and it's a good time now when most have capitulated to look at the sector and to see whether there are opportunities. I have a long list of stocks that I am researching writing reports and in this video I want to share my view on the shipping industry whether there are opportunities or what kind of opportunities are there. Will there be booms, busts etc. So let's start with the shipping analysis. But before we start just a quick comment if you want to check all my reports I can't make videos on that many shipping stocks or miners or emerging market stocks because people on YouTube are not that specifically interested more on the mindset please check my stock market research platform there you have everything I do my portfolios all the research reports all the sector reports so if you like me doing that for you for less than a dollar a day and me working full time on that I think it's a bargain so check that out and I think all the the users are pretty happy about the content and the quality of it let's go to shipping. So without shipping there's practically no life as we know it you can see here on the map where do all these small ships sail across the world ship things items oil whatever so shipping is really really important when it comes to the global economy trade and without shipping as I said there would be no life that we know it so is it smart to invest in that well there are some key things you have to understand before thinking about investing in shipping it's normal that the shipping industry works in cycles so when shipping rates what you pay to have a boat ship whatever you like across the world are low there is not much interest in building new ships in the industry and this leads to less investments and then in the future when there is more demand for ships high prices that lead to many new ships being built and therefore again followed by lower prices and these are normal cycles in the industry so it's a typical cyclic industry depending on global growth and global economic growth however the main problem when it comes to investing is that there is absolutely no competitive advantage if you let's say have a good margin good profit on a shipping route I know from Helsinki to Copenhagen and you make a lot of money next month there will be someone who will order a similar icebreaker to do the same route at half the price because it is profitable for him at that moment and this is a very very highly competitive business and therefore very difficult also to invest in a company like Maersk that is the global leader in the business has had a return on investment capital of just 2.2 percent over the first half of 2019 that is very little to base those huge investments over the long term the following presentation from Golden Ocean shows what are the risks and rewards when it comes to shipping companies could do well if there is more stimulus and continued growth in China if the new fuel regulation in 2020 increases costs and if more older vessels are scrapped happens only in fares are low which is again a negative on the risk side a global recession would create an oversupply situation and put most shipping companies into negative earnings territory further the world might also be changing it is expected that we will need less coal depending on China and India less oil in the future and less of those things that made shipping strong over the past long term cycle which is about a long 45 years so that's something to keep in mind shipping companies have of course a positive view and invest consequently and we can see here that capacity growth for liners for containers is usually in line with throughput growth except when there is a crunch where there is a recession because nobody expects a recession and that's a big danger when it comes to shipping some sectors have dared terribly shipping is not just one sector you have dry bulk you have liners offshore tankers and then other sectors so tankers offshore dry bulk did terribly over the last years liners did a little bit better but still on as a whole shipping did very very badly however the bet is still strong on emerging Asian economies growing they will need metals they will need oil they will need things they will export things they will develop and the bet is that consequently global growth will be strong global demand for shipping will be strong LNG shipping for example where you ship natural gas in liquidified form from the US to those countries in Asia there where there is high demand for that so that's the shipping investment thesis the long side the short term there is also a lot of upside there are three four things that are key when it comes to shipping and the shipping industry is promoting there are less ships coming into the market compared to the last 10 years there are new fuel regulations there is also the possibilities for slower speeds for environmental reasons as the US is exporting more LNG for example when shipping it to Asia there are longer shipping routes and we will use the oil sector example to explain what's going on but it applies to other sectors too everybody in shipping would love to see regulation about lower speed this would suddenly create the need for many more ships but logically the actual effect on the environment created by lower sailing speeds would not be big because you would have more ships so you lower emission on one ship but on the aggregate ships would still emit the same or perhaps even more CO2 than now if they are driving or sailing on a slower speed so secondly due to the negative sentiment there are fewer ships entering the market as there is no regulation about speed yet so you can see how the order books are hitting new lows because of lower prices and then it's not let's say profitable to invest in shipping but if those spot rates for tankers jump then people will again rush to investing in shipping plus fuel costs are expected to go up which should also push spot rates higher because ship shipmers will have to use higher more expensive fuel or install scrubbers or have very new ships that have great motors that consume fuel without or emit no sulfur also the trades are changing more trading from the US longer routes so more time for those ships to navigate the sea so more demand for ships and this is the story when it comes to shipping when there is a crunch and where there is a lot of demand for ships shipping companies make a lot of money on one day one week one year but this doesn't happen very often for example this company international seaways if they see prices like those was for their ships in 2008 they will make in earnings per share their complete stock price they would make it in one year if ship rates go to the mid-cycle average they would have a price earnings ratio of five recent peak 2015 they would have a price earnings ratio of two now they are unfortunately losing money because those rates are very very low and make a lot of shippers unprofitable but there has been an oversupply of ships because if we check the new ships coming onto the market the orders number of ships coming on the market over the last years has been very very large then on the risks when it comes to shipping what discussed just from now doesn't have to happen then there are a lot of ship shipping companies that bet on higher prices are very leveraged and when that doesn't happen then those are in trouble what happens is that the ships are simply sold to somebody else and the ship ships continue to sail the sea so it doesn't remove supply from the market drive ships is an excellent example of how shipping works the business didn't do well over the past years and then when most is lost especially a big risk for investing the CEO will simply take the company private and tell you goodbye at the miserable price compared to past level so if you're invested in the company average down the CEO just took all your possible upside and when it comes to shipping there is always huge possible upside further investors in front line didn't do really well over the past decade but was very important the majority owner Fridrichsen still holds a big chunk 42% of the company and the market capitalization didn't change much it was 2.3 billion in 2006 and now it is 1.8 billion so he still holds a big value in the company they buy you off when those prices go down when the company is about to bankrupt they inject capital into it and they dilute you but they still own a big part of the company so they are always ready to add more money when things are really really bad which is something you can't do on the levels these ship owners can't do and that's how can do and that's how they screw you very very often front line stock price it was 24 in 2002 now it is now in Fridrichsen probably made a lot of money over the last 17 years by putting in money when it's needed diluting existing shareholders etc a good thing to watch is there for corporate governments when it comes to investing in shipping be sure to assess the management's intentions properly and you see how many shipping companies there are and which are likely to screw you or not another problem with shipping is that the ship owners understand the risks of the business and they know they should never have their eggs in one basket so they always diversify and always keep a lot of cash on the side so that they can buy you out when necessary and they like to do things with that and that is a problem because most debt contracts usually have covenants and for example this is from flex lng a covenant requires the company to provide security or prepay an amount of the loan facility necessary to maintain the fair value of the vessels so when a covenant is breached and that's usually breached because you don't have money then those that have given you the money ask for more money you don't have it and then you easily go bankrupt or somebody buys you out for pennies on the dollar welcome to the shipping world it's a ruthless world world but there is always a lot of opportunity and you can make a lot of money other companies also went bust and you have to keep in mind you can really really lose a lot of money on the sector i am a value investor what's my strategy i will be looking at these companies seeing whether we can find the margin of safety whether we can find low risk or no risk high upside investments that's what we do on this channel that's what i do on my stock market research platform and that's what we are focused on perhaps we'll find stocks from 1000% upside and 100% downside or hopefully less if i find that i might invest this is my table i'll look at these companies and then i'll see whether there is something interesting to invest in nevertheless tomorrow i'll give you an example of a company where the upside is really high flex lng it's shipping lng across the world building new ships and it is a very very interesting company but before you even start thinking about investing in shipping i strongly suggest reading two short novels by author Matthew McCleary an expert on shipping the shipping man and viking rate it's in read it in that order and those are amazing novels that will explain you how shipping works in short the following is what we need to look at these are the moving parts when analyzing the shipping industry overcapacity backlogs from shipyards fuel costs the shipping war competition and lower cost technology development age of ship cost advantage amazon shipping they ask for some licenses to do global shipping blockchain technologies climate change new routes versus old routes and then when it comes to analyzing a shipping business market cycles for the specific sector liquidity of the company debt levels ownership freight rates ship size location daily running costs bunker costs cost of building ships crappage value debt covenants and competition so this is just an overview of the shipping environment subscribe for more such investment pieces where we look for low risk high reward investments thank you and i'll see you in the next video