Last Thursday, a ship was struck by a missile off the coast of Hodeida in Yemen. It’s the latest in a series of attacks carried out by Yemen’s Houthi militant group across the Red Sea since October.
While the group claims its actions are in response to the Israel-Gaza war… many of the 60-plus shipping vessels it’s attacked so far have had no connection to the conflict.
It’s important to note that the Red Sea is an integral travel route for global trade…
Put simply, the situation is wreaking havoc across the logistics sector… forcing vessels to take long detours around the Cape of Good Hope in Africa to avoid being targeted by the rebels.
And that’s not the only major disruptor to shipping right now…
The Panama Canal, another critical trade route, has been suffering from severe droughts—which have made the water too shallow for many ships… reducing traffic this year by 20%.
Meanwhile, ports from Canada down through the East Coast are facing the threat of workers’ strikes… which would throw another major wrench into the global logistics sector.
Unsurprisingly, these issues are sending shipping costs surging.
Fortunately, for savvy investors, the situation is creating opportunities for profit…
We’ll get to that in a minute. But first, let’s take a closer look at how the situation in shipping is rippling out (no pun intended) through the economy.
The economic impact of rising shipping costs
Shipping costs are climbing at rates we haven’t seen since the COVID pandemic and the resulting supply chain crisis…
Since October 2023, the cost of sending a 40-foot container ship from China to Europe has surged from $1,200 to $7,000—a 480% increase.
And the cost of the Shanghai-to-New York route has jumped from $2,000 to $8,000 per container…
It’s important to note that shipping costs are foundational to the economy…
While companies can lock in specific day rates to have their goods shipped… shippers can easily add on additional costs, like fuel charges—sending the total cost surging.
As a result, companies are left with two choices: either see their margins shrink… or pass the rising costs onto consumers via higher prices.
While we won’t see these prices reflected in the Consumer Price Index (CPI) immediately… it will happen—and it will impact countless companies across sectors. Those that have the ability to raise prices will be fine (although, of course, that’s not ideal for consumers)…
Meanwhile, companies without pricing power will suffer in the coming quarters as their margins shrink.
Put simply, the turbulence in the shipping sector spells trouble for consumers and many businesses.
Of course, there is one sector that stands to benefit enormously from the situation…
How to profit from surging shipping rates
As geopolitical conflicts and natural disasters drive up shipping costs, shipping stocks are an obvious choice for investors… as they’re poised for significant gains.
For example, chemical tanker company Ardmore Shipping (ASC) and dry bulk shipper Costamare (CMRE) have both seen their stock prices climb to 52-week highs—and they have more room to run.
Let’s start with ASC… You see, day rates for chemical tankers have jumped from $29,100 to $39,000.
And for every $10,000 increase in day rates, ASC’s annualized free cash flow jumps by $95 million. That’s quite a bit of cash for a company with a market cap of around $1 billion.
Meanwhile, CMRE says it’s already booked over $3 billion in profits over the next couple of years by locking in contracts with current shipping rates.
Both stocks offer attractive dividends—around 4% for ASC and 3% for CMRE, vs. 1.35% for the market.
If you want to expand your search into other shipping stocks, look for companies with flexible contract structures that allow them to capitalize on rising rates, strong balance sheets, and a history of navigating industry cycles.
The bottom line: The surge in shipping costs is creating countless opportunities for profit… In particular, shipping stocks like Ardmore Shipping (ASC) and Costamare (CMRE) are primed to benefit.
For Daniel and Frank’s full discussion on the topic—as well as several more ideas to leverage current economic trends—check out the latest episode of WSU Premium.
