Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Supply chains go travel-style: All-inclusive logistics present opportunities for Investors
Søren Otto Simonsen
Senior Investment Editor
Summary: Global supply chains are challenged and while it is frustrating not being able to get the iPad or car you want, the development forces the logistics sector to reinvent itself, which presents interesting opportunities for investors.
It is difficult to get goods moved around the world. Previously the supply chain industry was a race to zero – offering the lowest possible price and the fastest possible delivery. But with the recent logistics challenges come both an increased willingness from companies to pay a premium for getting their goods first in line, and enhanced competition in the logistics sector. In this piece we look at how the latter creates opportunities for investors.
With container prices soaring and the possibility of getting goods offloaded in harbours decreasing, it is getting increasingly important for companies to get an all-inclusive deal with their logistics partner and be a premium partner who can get their goods prioritised over other’s. According to Saxo’s Head of Equity Strategies, Peter Garnry, the current supply constraints split the logistics sector in two: “With the challenges, we are experiencing, we have seen a bigger move towards what I guess you can call all-inclusive logistics companies, instead of the more traditional line shipping companies, where you just move a piece of good from A to B. Instead, companies need their logistic partner to take their goods all the way from factory to end-destination,” he says.
In the picture below it can be seen that the amount of cargo being off-loaded and loaded in a port like Hong-Kong has fallen roughly 25 pct. on average from 2020 to 2021. This serves as an example of bottlenecks in the global supply chains, which make it harder for goods to go from one place to another and thus delivery takes longer. The picture also shows the massive price increase on shipping containers from 2020 to 2021. This indicates the imbalance between the “supply of logistics” relative to the demand of it. In other words, as a company it’s harder to get your goods in a container and on a containership and therefore get it to where it’s being sold. Therefore, companies are willing to pay more for those containers.
With container prices soaring and the possibility of getting goods offloaded in harbours decreasing, it is getting increasingly important for companies to get an all-inclusive deal with their logistics partner and be a premium partner who can get their goods prioritised over other’s. According to Saxo’s Head of Equity Strategies, Peter Garnry, the current supply constraints split the logistics sector in two: “With the challenges, we are experiencing, we have seen a bigger move towards what I guess you can call all-inclusive logistics companies, instead of the more traditional line shipping companies, where you just move a piece of good from A to B. Instead, companies need their logistic partner to take their goods all the way from factory to end-destination,” he says.
In the picture below it can be seen that the amount of cargo being off-loaded and loaded in a port like Hong-Kong has fallen roughly 25 pct. on average from 2020 to 2021. This serves as an example of bottlenecks in the global supply chains, which make it harder for goods to go from one place to another and thus delivery takes longer. The picture also shows the massive price increase on shipping containers from 2020 to 2021. This indicates the imbalance between the “supply of logistics” relative to the demand of it. In other words, as a company it’s harder to get your goods in a container and on a containership and therefore get it to where it’s being sold. Therefore, companies are willing to pay more for those containers.
Garnry says that there’s a great opportunity for logistics companies to expand their business and there’s upside both in terms of becoming a more integrated partner for production companies as well as the ability to charge a premium: “If you expand your offering from line shipping from A to B to a whole network, where you go in and make a huge contract – it could be with e.g. Inditex or H&M, where you look to deliver the full package in terms of logistics, sourcing, transporting from all the source areas to the factories, i.e. transport from production to the factories, to the ports and then to the end markets, you offer a service, which is extremely complicated, and you can charge a premium price. I see this as a very interesting opportunity for investors in logistics,” he says.
On the other hand, Garnry sees that logistics companies sticking to more traditional business models could be in trouble: “I don't think the simple transport services, simple trucking companies or simple line shipping will be very interesting. I think to a large extent that aligned shipping companies moving containers from A to B is still very much a commodity. It may be a little bit more complicated than producing televisions, but it's still in that category of being a commodity service or commodity driven industry and because of that I don't think their return on capital will be very good,“ he says.
On the other hand, Garnry sees that logistics companies sticking to more traditional business models could be in trouble: “I don't think the simple transport services, simple trucking companies or simple line shipping will be very interesting. I think to a large extent that aligned shipping companies moving containers from A to B is still very much a commodity. It may be a little bit more complicated than producing televisions, but it's still in that category of being a commodity service or commodity driven industry and because of that I don't think their return on capital will be very good,“ he says.
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