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2018.03.25 Penn Wealth Report Vol 6 Issue 01

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8 Penn Wealth rePort voluMe 6 issue 01 25 Mar 2018 Penn Wealth RePoRt Copyright 2018. All Rights Reserved. investment intelligence What do you think of when you hear the words "global economy?" We know that the world is more intercon- nected than ever, and we certainly hear a lot about America's trade deficit with countries like China and Japan. But, did you ever stop and think about exactly how all of those goods make their way from the pro- ducing country to the consuming country? The roots of shipping goods by sea can be traced back to the 3rd century BC, when Phoenician trad- ers realized they could vastly expand their markets by loading their grain-filled bags, wooden crates, and barrels of cargo on ships, moving them by water rather than across mountainous, rocky terrain. This pro- cess, known as break-bulk shipping, remained largely unchanged for thousands of years, until the mid- 20th century. In 1956, modern container shipping was born. In that year, US trucking entrepreneur Malcom P. McLean, who had already purchased a steamship company for experiment, stacked 58 large metal containers on a ship for transport from New Jersey to Houston. He envi- sioned containers going from mode-to-mode, trucks to ships to trains, without the need to unpack the goods. The industry was revolutionized. Purpose-built ships were designed and manufactured, and shipping costs plummeted by over 75%. The shipping lines we know today, such as A.P. Moller-Maersk and China Ocean Shipping (COSCO), came into being thanks to McLean's innovative mind. Today, over $4 trillion worth of goods is transported annually by one of five main methods (on the pur- pose-built ships): • Container ships transport toys, TVs, clothing, meat, computers, and other "hard" goods. • Dry bulk shippers move grain, coal, iron ore, cement, sugar, salt, and sand. • Liquid bulk shippers transport crude oil, petrol, fuel oil, liquefied natural gas (LNG), vegetable oils, and even wine! • Break-bulk ships still move items difficult to aggregate. • Ro-ro ships are designed to carry wheeled cargo, such as cars, trucks, buses, and construction equipment which can be rolled-on and rolled off (hence, the name ro-ro). With so much demand, why did shipping crash? While there is an enormous demand for the shipment of all types of goods, especially with the US export of LNG coming online and the growing rate of global growth, let's not forget the virtual seizing-up of the global economy in 2008 and 2009 due to the banking crisis. Until that point, China was given an unsustain- able growth multiple, and the other side of the supply/ demand equation took off. As shippers got more greedy and their "fear of miss- ing out" grew, they were more willing to buy into the double-digit Chinese growth story, adding an enor- mous number of ships to their respective fleets. What none of them saw coming was the great slowdown in the emerging markets, which were so heavily reliant on the financial institutions in the developed world. A shipping glut quickly formed, driving many shippers to the edge (or over the edge) of insolvency. This great downturn in the industry spooked investors who had thought the sky was the limit for publicly-traded industry players. After the steep losses, they became quite gun-shy. The State of Global Shipping After investors got burned during the global downturn, this industry is now rife with opportunity—but be careful Maritime Over $4 trillion worth of goods annually is transported across the seas The content of this report reflects the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscribers. This is not a solicitation to buy. Always consult your investment professional before investing any money.

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