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Globalization is responsible for a lot of great things: Higher incomes for fast-growing middle classes in Asia, cheaper consumer electronics in the United States, markets for energy in the Middle East, a shorter workweek in Europe and Kentucky Fried Chicken outlets in Kuwait.
But what is responsible for globalization? Is it an improvement in entrepreneurs' ability to finance emerging markets' factories? The liberalization of command-driven economies in formerly despotic countries? A stroke of luck?
I would suggest a lot of the credit can be given to the standardized shipping container -- those 40-foot-long boxes you see on the decks of oceangoing ships, rail-car flatbeds and truck trailers. Without agreement among the world's manufacturing and freight-forwarding giants on the size and shape of a common box, getting iPods and chairs and auto parts from Shanghai to Seattle and Scotland would be crazy-expensive, not to mention a huge hassle.
Lines in the shipping lanes
Shipping those containers seems like an easy task, but the ability to do so is actually something in great demand and low supply these days. To give you an idea of how constricted the supply of all those containers has been this year, consider that the Baltic Exchange's dry-freight index -- a composite of prices for shipping all sorts of "dry" things, such as commodities and containers -- hit a record high of 6,250 this week. It's up a whopping 40% this year alone.One of the reasons for the surge is that port congestion has been terrible, keeping ships in harbors longer than shippers would like and running up the bills. Plus, there's very little new supply of boats coming on line. The Financial Times reported that at Newcastle, Australia, a key port in the world supply chain, queuing for loads reached a historic high of 72 vessels on April 16, compared with an average of 26 throughout 2006. That keeps a lot of ships off the high seas, increasing their demand and rates.
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For many years there was no satisfactory way to play the rise of container shipping, as most of the carriers are private, government-owned or small parts of large international conglomerates. But in the past year, two companies have come public that give us a chance to directly participate: Seaspan (SSW, news, msgs), based in Vancouver, Canada, and Danaos (DAC, news, msgs), based in Athens, Greece. Both should offer a lot of capital appreciation and dividend income over the next several years and would make solid holdings in any portfolio.
I spoke to Seaspan founder and Chief Executive Jerry Wang last week about his company, and I was impressed both with his business plan and enthusiasm. You might think enthusiasm is a superficial quality, but as an investor you really want the head of a company to be able to communicate his beliefs well to institutional investors and the public because they are the ultimate arbiters of value.
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Battling global rivalsMany U.S. job losses can be attributed to the growing trend of globalization. MSN Money's Jim Jubak says there are two aspects to increased global competition: countries using their natural resources and countries altering business restrictions to lure companies.
Wang, a Canadian citizen, was working as a consultant for the national Chinese shipping line in 1998 during the Asian financial crisis when he noticed that the demand for ships was weak and prices were low. He recommended that the shipping line increase its container ship fleet, but executives demurred, complaining that it would be two years before they could get funding through the government bureaucracy. Wang said he then asked how long it would take to get funding to obtain ships on a long-term charter, and the executives said it would take no time at all because it would be a simple business transaction, not a capital expenditure.
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