Although the market has been resilient so far this fall, it has some issues to work through.
The main risks coming out of the summer were oil prices and interest rates. Both have gotten significantly worse this month. The price per barrel of crude oil soared over $100 this week for the first time since May. The benchmark 10-year Treasury rate soared to the highest level since 2007 and passed the psychologically important 5% level.
At the same time, the artificial intelligence trade has been floundering since July. It might be tougher to find stocks that provide good returns over the rest of the year, with non-tech stocks grappling with high oil prices and interest rates and the AI trade on the sidelines. But there are opportunities out there. It’s just a matter of looking beyond the beaten path.
One underappreciated industry that still offers high dividends and compelling valuations in the current market is shipping. You probably don’t own any shipping stocks. But it’s a massive and essential business. In fact, ships transport roughly 90% of all goods traded throughout the world. It is the respiratory system of the global economy. Chances are that most of the products you use every day have been on a ship.
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Commercial shipping is an industry that employs seagoing vessels to transport goods over water for a fee. It is one of the oldest industries in existence, having been around since the time of ancient Egyptians, Greeks, and Romans.
This essential industry is even more important today with the ever-growing pace of global trade. The thing about shipping is that water is by far the most efficient, cost-effective and environmentally friendly way to move large quantities of heavy goods. Moving goods by truck, rail, or airplane is infinitely more expensive, and you can’t move nearly as much. Shipping over water is the only way to transport huge amounts of raw materials, food, and manufactured goods affordably throughout the world.
That’s why the shipping industry is responsible for the carriage of roughly 90% of all goods traded and exchanged throughout the world. It is the ultimate facilitator of trade and the lifeblood of the modern global economy.
But it’s an underappreciated sector because stock performance was terrible for a long time. Shipping boomed in the early 2000s as the rise of China and other emerging markets exponentially grew the level of global trade in a short amount of time. The volume of global trade skyrocketed 60% between 2002 and 2007.
Shipping rates crashed during the financial crisis. They started to recover in the years following but hit a wall as huge problems arose.
Why Invest in Shipping ETFs Now
Massive orders of new ships, placed during the unprecedented boom times of years earlier, hit the market just as Chinese growth slowed significantly. The massive new supply combined with shrinking demand caused shipping rates to collapse and prompted a depression in the industry that lasted a decade.
But the market has finally caught up. There is no longer an oversupply situation, and the industry has adjusted to the level of world trade that has doubled since 2000. Shipping rates will continue to bounce around with geopolitical events and the global economy. But the trend has been unmistakably higher over the past several years.
Sure, shipping rates, and the fortunes of most shipping stocks, go up and down a lot. It’s also true that shipping stocks got a boost this year because of the rate increases caused by the current tensions in the Middle East. And those tensions are likely to cease in the months ahead. But the reemergence of shipping stocks has been going on since before this year.
Consider the performance of SonicShares Global Shipping ETF (BOAT), a bellwether in the industry. Here are the returns versus the S&P 500 for various periods over the past five years (as of September 15).
| 5-year | 3-year | 1-year | |
| SonicShares Global Shipping ETF (BOAT) | 186% | 148% | 69% |
| S&P 500 | 81% | 77% | 16% |
The longer-term trend shows strong performance. In the four full calendar years since BOAT was incepted in August of 2021, BOAT outperformed the market in three out of the four years. Recent strong performance isn’t an aberration; it’s a trend.
Meanwhile, most major shipping stocks still sell at ridiculously low valuations, with price/earnings ratios often in the low single digits. Investors haven’t really warmed to the sector yet, probably because they are still cowed by the 10-year depression in the industry. But the earnings growth is there, the valuations are cheap, and many of the stocks pay big dividends.
You can invest in the overall sector with shipping ETFs, including BOAT and U.S. Global Sea to Sky Cargo (SEA). There are also several high-dividend-paying stocks that sell at dirt-cheap valuations and have positive momentum too.
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