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Ships are an attractive asset class that offers unique benefits and opportunities to investors. But, unfortunately, they are also the most gated asset class in the world due to their high barriers to entry.
In this blog post, we will explore why ships are such an attractive asset class, why they are so exclusive, and why anyone can't become a shipowner easily.
Why Ships are the Most Gated Asset Class
Ships are the most gated asset class because of their high barriers to entry. They require a significant amount of capital and expertise to acquire and operate. Moreover, the shipping industry is highly regulated, with strict safety, security, and environmental protection requirements.
Ships also require significant maintenance and operational expenses, including crew salaries, fuel costs, and insurance premiums. These expenses can be unpredictable, and they can affect the profitability of the investment.
As a result, ship ownership is typically limited to large institutional investors, such as banks, pension funds, and private equity firms. These investors have the capital, expertise, and resources to acquire and operate ships and navigate the complex regulatory environment.
The Number of Ships in the World and Their Revenue Generation
According to the United Nations Conference on Trade and Development, there were approximately 96,000 commercial ships worldwide as of 2020. These ships generated an estimated $500 billion in revenue for the shipping industry.
The revenue generated by ships highlights their importance as a vital component of global trade and transportation. Moreover, the growing demand for shipping services, driven by globalization and the growth of e-commerce, is expected to fuel further growth in the industry and create more opportunities for investors.
Why Anyone Can't Become a Shipowner Easily
While ship ownership is becoming more accessible to a wider range of investors, it is still not an easy asset class to enter for everyone. The high capital requirements, complex regulations, and operational expenses remain significant hurdles for many potential investors.
For example, the cost of a new container ship can range from $50 million to over $150 million. This makes it difficult for individual investors to enter the market with significant financial backing.
Moreover, the shipping industry is highly specialized and requires high expertise to operate effectively. This expertise includes knowledge of regulations, international trade, and maritime law, among other things.
Finally, the unpredictable nature of the shipping industry, including fluctuations in demand and fuel costs, can make ship ownership a risky investment for individual investors who need more resources and diversification to manage such risks.
Benefits of Investing in Ships
Despite the high barriers to entry, ships remain an attractive investment opportunity for investors looking for high returns and diversification. Here are some of the benefits of investing in ships:
High Returns: Ships offer high returns compared to other asset classes. According to a study by the Norwegian School of Economics, ships generated an average annual return of 14.6% between 2005 and 2015.
Inflation Hedge: Ships act as a hedge against inflation because they are tangible assets that can retain their value even during high inflation.
Tax Benefits: Shipowners can benefit from tax incentives, such as depreciation allowances and tax credits for environmentally friendly ships.
Sustainable Investing: Investing in ships presents an opportunity to invest in sustainable and environmentally friendly companies. Many shipping companies invest in new technologies and practices to reduce their carbon footprint and comply with environmental regulations.
Accessibility of Ship Ownership through fractional ownership
Despite the high barriers to entry, ship ownership is becoming more accessible to a wider range of investors. This is partly due to the emergence of fractional ownership, which allows investors to own a percentage of a ship rather than the entire vessel. This makes ship ownership accessible to investors with a smaller amount of capital. In addition, Shipfinex is creating a bridge between investors and ship owners by creating an exchange platform where anyone can become a shipowner.
In conclusion, ships are an attractive asset class that offers high returns and diversification. However, they are also the most gated asset class due to their high barriers to entry, which limit ship ownership to large institutional investors. Nevertheless, ship ownership is becoming more accessible to a wider range of investors through fractional ownership and financing options.
By owning fractional ownership in these shipping assets, investors can diversify their portfolios and benefit from the high returns and other benefits of ship ownership without spending hefty amounts. In addition, the growing demand for shipping services and the importance of ships in global trade and transportation make them an attractive long-term investment opportunity for investors.