Contextualizing Shipping Investment Returns
What is the average yearly return on a shipping investment?
I was first asked this question in 2015, while interviewing for my first finance job at CIT Bank’s shipping desk. I didn’t know it at the time, but 7-8% is the widely accepted answer. (Thankfully, Svein Engh and Omer Donnerstein hired me anyway.)
A decade later, I’ve decided to do the math myself.
Let’s assume an investor buys a 10-year-old Panamax bulk carrier and operates it for one year before selling. This strategy’s performance over the past 25 years has brought in an annual return of ~15%––not 7-8%.
Contrast this with a one-year investment in the S&P 500, which actually is 7% on average.
Does this mean shipping is the better place to invest? Not quite. On a risk adjusted basis, the S&P 500 is a better place to allocate capital.
The volatility, as measured by the standard deviation, for shipping lands at 43%––more than double the S&P 500’s 18%.
But with volatility comes the potential for outsized returns (and losses); this is the siren’s song of investing into shipping.
The S&P 500’s highest return over the past 25 years was just under 30%, meanwhile shipping returns eclipsed that figure seven times in the same time span.
