Why you should get into shipping

Sectors: Why you should get into shipping - at Moneyweek.co.uk - the best of the week's international financial media.

When most people think of commercial shipping they think of the great Greek shipping tycoons who made a mint in the 1960s and 1970s: Aristotle Onassis, Stavros Niarchos and John Latsis. Since then, the shipping industry has been all but ignored by professional investors, but I think that it's time they paid attention again. The fact is that the European shipping industry is undergoing something of a renaissance and now offers a number of exciting opportunities.

Consider China and its booming economy. China imports commodities such as iron ore, coal and oil from the rest of the world, and exports inexpensively made manufactured goods, such as textiles, toys and electrical goods. The result? Business for companies involved in shipping these goods back and forth is booming. Shipping freight rates have doubled in the last two months and Chinese ports are so busy that ships often have to queue for a week to pick up their cargo. AP Mller-Maersk, little known outside its native Denmark, is in the sweet spot of this boom. Maersk's fleet is double the size of its nearest competitor and it takes the lion's share of global container shipping trade. It also manages port terminals all over southeast Asia and in the US. Its chairman, Maersk McKinney Mller, Denmark's richest man by virtue of his 56% stake, will retire this month. I would expect his successor to divest peripheral assets, make better use of debt financing, and improve investor relations.

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Fredriksen also owns a majority stake in Golar, a pure-play on the fast-developing liquefied natural gas (LNG) market. Golar has a fleet of just 11 vessels, but management aims to treble this over the next five years to cope with booming demand. With their own gas fields depleting, the US and the UK in particular are having to import more and more gas from producers such as Trinidad and Malaysia. LNG is an area set for explosive growth. As a result, the number of ships required to transport the gas will need to increase dramatically. Nearly all LNG carriers are booked out on 20-year contracts, as are the majority of ships being built over the next three years. To veteran observers, the nascent LNG shipping market looks like the next big thing' and Golar investors have maximum exposure to it.

So there we have it. Shipping is a growth industry, competition is benign, valuations inexpensive and management increasingly friendly to shareholders. This strong tail wind should see all three stocks sail into 2004

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