Many investors these days are looking for alternatives to traditional stocks and bonds that can help to diversify their portfolios. Some alternative investments, such as REITs and peer-to-peer lending, have attracted a great deal of attention and become quite mainstream. Others, however, have remained little-known to the point that most investors aren’t even aware of their existence. Investing in shipping containers is a form of investment that falls into the latter category, but which can be surprisingly lucrative. Here’s what you need to know about shipping container investing and how it can fit into your portfolio.
How Does Shipping Container Investing Work?
In principle, shipping container investments are quite similar to real estate rental investments. An investor purchases a shipping container, which is then leased to a transportation company at a certain monthly lease rate. This, in turn, provides the investor with a reliable cash flow from each container he or she owns each month. Since the containers are deployed nationwide or even globally via the transportation companies that lease them, the investor who owns them doesn’t even have to physically accommodate and store them most of the time.
Though this is the basic principle behind shipping container investments, the actual logistics get a bit more complex. Shipping companies are some of the largest and most bureaucratic organizations in the world, making them difficult for individual investors with small numbers of shipping containers to approach directly. Fortunately, investors can turn to shipping container brokers for help. These brokers maintain direct business relationships with shipping companies and use those relationships to facilitate lease agreements between individual investors and companies that need to use their shipping containers. Of course, shipping container brokers will charge you a fee for their services, but they will also make it possible for you to access opportunities that you would otherwise find very difficult to negotiate your way into.
How Much Does it Cost to Get Into Shipping Container Investing?
Hypothetically, the bare minimum investment threshold for a shipping container investor is the purchase price of a single shipping container. In practice, though, most investors need about $50-100,000 to get started. This is because the brokers that tend to facilitate container leases typically won’t work with investors who are below this level. You may be able to start smaller and do business with local or regional shippers, but you’ll need a reasonable amount of investment capital to work with large international shippers through a broker.
What Returns Can You Get?
As with any other investment, the critical question about investing in shipping containers is what the return on your capital looks like. As a general rule, long-term shipping container leases yield annualized returns of 10-12 percent. If you want higher returns, though, you can try to find short-term leases, which can pay up to 20 percent under the right circumstances. Be aware, however, that these short-term leases can equate to more unproductive time for your containers while they are between leases. Longer-term leases, by contrast, can produce predictable income for years at a time.
Advantages and Disadvantages of Shipping Container Investment
The advantages of shipping container investment include a high annualized rate of return and an initial investment that is reasonable for most retail investors. It is also an investment model that is easy to scale for more cash flow, since you can purchase more containers at any time. The generally passive nature of the investment also makes it highly suitable for busy professionals who may not have time to manage their investments actively. Finally, thanks to the consistent need to ship goods worldwide, shipping containers are less exposed to recessions and market drops than most traditional financial securities.
On the downside, shipping containers are physical assets that don’t come with the high levels of regulation and protection you’ll find in more traditional securities markets. The threshold investors need to meet to work with brokers can also exclude people without reasonable savings from easily participating in the shipping container market.
Overall, shipping container investing is an alternative investment that is well worth looking into. If you’ve been looking for a reliable and steady way to add cash flow to your portfolio, investing in shipping containers may be a good solution for you.
—-DAVENPORT LAROCHE, Shipping Container Investing Services Worldwide