Money in Container Shipping? (CRNS)
There was a great Pearlstein column in the Washington Post today called Learn the Lesson Of Charleston's Port (free reg. required).
His basic point is about U.S. port capacity, and the ending note is interesting food for thought:
"China is building close to 100 new container-loading berths over the next few years, each capable of shipping about 250,000 containers a year, most of them to the United States. Meanwhile, five berths are planned for the West Coast of the United States to receive them. Something's got to give."
So if this current stalemate in port expansion continues, there are going to be hundreds of container ships stacked up across the ocean waiting to unload, which means the shipping rates will go up because of higher demand and the containers themselves will not be turned over as quickly, therefore creating more demand for the intermodal containers.
Is there a way to make money on this?
Containers are commodity items, with some caveats -- the actual boxes are uniform in size and no one much cares what they look like. The caveat is, more than anything else, location -- where are the containers? Are they located in the areas where they're needed? Perhaps more importantly, in these days of dramatically uneven trade can you afford to be shipping empty containers back across the Pacific to China for reloading?
It's a complex business, but there are some interesting companies in it. One that I held in my portfolio in 2004 but no longer own is Cronos Gropu (Nasdaq: CRNS). This is an absolutely tiny and heavily indebted company, but it's also cheap. Market cap is under $100 million, and they've got more than $60 million in debt and some fairly complex partnership agreements with investment funds that actually put up the money for the containers in exhange for a cash yield -- a large portion of their containers are leased in or otherwise highly leveraged, not owned outright.
Cronos has a fairly detailed website available, which will give you some idea of their business -- just the home page lists their locations around the world, which are the places where you can pick up or return containers -- lots of locations across Asia and Europe, which gives them some nice geographic diversity as well as the ability to serve customers wherever they want to go, and a wide variety of available containers. The standard boxes that are usually used for packaged goods are certainly the main driver of container shipping, but you can also get refrigerated boxes, tankers, racks, bulk containers, and more from them, as well as the logistics services to manage the movement of your containers. They do not, just to be clear, own or manage the container ships -- there are a few public companies that do, but most of them are European and Asian, and many more are privately owned.
While CRNS competes to some extent with all the large shipping companies that already own their own containers, they also hope to be suppliers for most of those companies because of their ability to meet short term demand for containers that exceed the capacity of those companies, or that are located in the right area of the world at the right time.
The major public competitor for Cronos is Interpool (IPX), which just announced recently that they'll be selling their containers (though they'll still provide the container management services), which the market seemed to appreciate as a way to unlock some of the cash value of those containers. I don't know that Cronos, a much smaller company, has any flexibility to do anything similar since many of their containers are already owned by partnership funds.
One other positive aspect of the company, on a brief glance, is that they have fairly significant insider ownership -- the directors are pretty heavy owners, and one very involved asset management firm (York) owns a big chunk, so insiders own about 20%. That's a positive sign, most of the time.
It's worth checking out the Cronos website to see the variety of containers they provide -- if shipping standardization and containerization is a trend on the rise, as I think most experts believe it to be, then they certainly have the inventory and know how to benefit.
But with a heavy debt load and a massive inventory of containers spread around the world that they have to pay to maintain and store, if shipping declines for any reason they'll be in a world of hurt -- with a tiny market cap and a large amount of debt, they don't have a lot of recourse in a downturn ... which is a large part of the reason, I expect, that they're trading at a trailing PE of about 7. They also have just completed what they hope will be a resolution to some litigation, which hasn't impacted the shares all that much but is certainly a positive sign.
The shares climbed significantly in the worldwide enthusiasm for shipping stocks of all kinds in 2003 and 2004, but they've largely treaded water for the last year ... I haven't decided to open a new position in CRNS, and in fact only brought them back to mind because I was reading that article in the Post this morning, but it's definitely going onto my watch list for more detailed consideration given the explosive growth in container shipping I expect to see for the next several years.
His basic point is about U.S. port capacity, and the ending note is interesting food for thought:
"China is building close to 100 new container-loading berths over the next few years, each capable of shipping about 250,000 containers a year, most of them to the United States. Meanwhile, five berths are planned for the West Coast of the United States to receive them. Something's got to give."
So if this current stalemate in port expansion continues, there are going to be hundreds of container ships stacked up across the ocean waiting to unload, which means the shipping rates will go up because of higher demand and the containers themselves will not be turned over as quickly, therefore creating more demand for the intermodal containers.
Is there a way to make money on this?
Containers are commodity items, with some caveats -- the actual boxes are uniform in size and no one much cares what they look like. The caveat is, more than anything else, location -- where are the containers? Are they located in the areas where they're needed? Perhaps more importantly, in these days of dramatically uneven trade can you afford to be shipping empty containers back across the Pacific to China for reloading?
It's a complex business, but there are some interesting companies in it. One that I held in my portfolio in 2004 but no longer own is Cronos Gropu (Nasdaq: CRNS). This is an absolutely tiny and heavily indebted company, but it's also cheap. Market cap is under $100 million, and they've got more than $60 million in debt and some fairly complex partnership agreements with investment funds that actually put up the money for the containers in exhange for a cash yield -- a large portion of their containers are leased in or otherwise highly leveraged, not owned outright.
Cronos has a fairly detailed website available, which will give you some idea of their business -- just the home page lists their locations around the world, which are the places where you can pick up or return containers -- lots of locations across Asia and Europe, which gives them some nice geographic diversity as well as the ability to serve customers wherever they want to go, and a wide variety of available containers. The standard boxes that are usually used for packaged goods are certainly the main driver of container shipping, but you can also get refrigerated boxes, tankers, racks, bulk containers, and more from them, as well as the logistics services to manage the movement of your containers. They do not, just to be clear, own or manage the container ships -- there are a few public companies that do, but most of them are European and Asian, and many more are privately owned.
While CRNS competes to some extent with all the large shipping companies that already own their own containers, they also hope to be suppliers for most of those companies because of their ability to meet short term demand for containers that exceed the capacity of those companies, or that are located in the right area of the world at the right time.
The major public competitor for Cronos is Interpool (IPX), which just announced recently that they'll be selling their containers (though they'll still provide the container management services), which the market seemed to appreciate as a way to unlock some of the cash value of those containers. I don't know that Cronos, a much smaller company, has any flexibility to do anything similar since many of their containers are already owned by partnership funds.
One other positive aspect of the company, on a brief glance, is that they have fairly significant insider ownership -- the directors are pretty heavy owners, and one very involved asset management firm (York) owns a big chunk, so insiders own about 20%. That's a positive sign, most of the time.
It's worth checking out the Cronos website to see the variety of containers they provide -- if shipping standardization and containerization is a trend on the rise, as I think most experts believe it to be, then they certainly have the inventory and know how to benefit.
But with a heavy debt load and a massive inventory of containers spread around the world that they have to pay to maintain and store, if shipping declines for any reason they'll be in a world of hurt -- with a tiny market cap and a large amount of debt, they don't have a lot of recourse in a downturn ... which is a large part of the reason, I expect, that they're trading at a trailing PE of about 7. They also have just completed what they hope will be a resolution to some litigation, which hasn't impacted the shares all that much but is certainly a positive sign.
The shares climbed significantly in the worldwide enthusiasm for shipping stocks of all kinds in 2003 and 2004, but they've largely treaded water for the last year ... I haven't decided to open a new position in CRNS, and in fact only brought them back to mind because I was reading that article in the Post this morning, but it's definitely going onto my watch list for more detailed consideration given the explosive growth in container shipping I expect to see for the next several years.
Labels: CRNS
This article posted by One Guy @ 3/29/2006 09:29:00 AM 0 comments
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