It is evident that the impact of the global financial crisis extended much further than just the financial services sector. Trade throughout the world took a severe hit, and as a consequence, the world’s shipping industry experienced a sharp downturn.
However, there has been a concerted effort by many of the industry’s leading firms to modernise the way in which they do business, in particular through the use of containers. One of the leading proponents of such a strategy is Magellan Maritime Services, a global leaser and trader of containers that was founded in Hamburg in 1995. World Finance spoke to its CEO and founder Carsten Jans about the company’s history, the attractiveness of containerisation, and why containers are proving so popular for investors.
How long has Magellan been offering investments in containers?
Magellan was founded as a container trading and leasing company in 1995, so we’ll be celebrating our 20th anniversary in 2015. We’ve also been offering investors outside the industry the opportunity to benefit from container investments since 2005.
Standard containers have come to play an essential role in global trading. you could even say they’re a symbol of globalisation
Our investors purchase containers at a minimum investment of around €10,000 ($12,453), and they are the sole owners of the containers, each with their own individual purchase agreement with Magellan – no investment fund or similar enterprise involved. We also lease containers back for a five-year period in separate administration agreements that guarantee a fixed leasing rate of around 12 percent per annum on the purchase price. After the five-year period, we purchase the container back from the investor at a repurchase value of around two-thirds of the purchase price. We have since paid up all of our leasing payments and repurchase prices for the 56 container investments we have concluded since 2005, as predicted. Many investors have already invested in our containers more than once due to the good experience they have had with us.
What do investors find attractive about shipping containers?
The low interest rate policy has reduced the number of investment opportunities with a decent return on investment and predictable investment security for investors in Germany and Europe. Containers as tangible assets have been satisfying these criteria for increasing numbers of investors that go on and tell their friends and associates.
Investors aren’t recommending fixed-interest bank deposits at a maximum yield of two percent, which are hardly inflation-proof. Containers ensure returns of around six percent per annum, and the risk is manageable. Container values remain stable even in times of crisis – a 20ft container consists of around two tonnes of steel. Tangibles with steady values have become more important to investors since the financial crisis – specifically, tangibles with values that can’t be written off to zero. Containers are mobile and can be used wherever they’re needed, so these tangibles will still make sense to investors in the future.
What sets Magellan apart from other investments?
Magellan Maritime Services is not a typical fund company so familiar in the world of investment funds, but an operationally active container leasing company that takes care of every part of the container’s value as a tangible asset from manufacturing to sale at the end of the investment period.
We represent traditional business virtues such as reliability, clean management, punctuality and economic sustainability – values our national and international partners from industry appreciate, values that we pass on to our investors. We pursue a sustainable container business approach that our investors automatically benefit from. This completely eliminates the risk of an asset manager doing well while the investor loses out.
What are the success factors?
Obviously, it takes a sustainable approach alongside sound business activity. We don’t depend on third parties in our business operations, but order our containers straight from the manufacturer thanks to the years of contacts we have formed. These manufacturers as well as the liner shipping companies have full confidence in our company as a sound partner with the Magellan name on more than 190,000 TEUs (20-foot equivalent units). No other container investment company can claim that.
We don’t buy container portfolios to refinance them and sell them on for a better price as some investment companies do – our earnings come from the asset value of our containers in daily business. We have already gained a name as an international player in the container leasing business; Magellan is currently the largest container lessor in Germany, and 14th-largest worldwide.
Why are Magellan investments a more sound choice than other container investments?
We lease our containers to the top 25 liner shipping companies without intermediaries; you will often find us at the liner shipping companies and container manufacturers, and this gives us a financial edge over other companies as we work directly with manufacturers and lessees without agents and intermediaries.
Investors have confidence in entrusting their assets directly with an internationally experienced market player. There are no investment companies that also earn from financial management without themselves operating actively on the market, and no investment company would ever unnecessarily reduce its yield.
What containers does Magellan invest in?
We are involved in standard containers, with a few exceptions – 20ft, and 40ft high cube containers. These containers have been crossing the oceans for decades, so they’re not a fashion thing. Standard containers have come to play an essential role in global trading, and you could even say they’re a symbol of globalisation. These container types are obviously also subject to market mechanisms that can impact both sales prices and leasing rates, and the fluctuating price of steel also has an effect.
Even so, you’ll find these standard containers in any port, and they can be used virtually anywhere. Major liner shipping companies order these containers as needed, and any excess capacity takes a few months to absorb – you won’t find the unused capacity that you might find in ocean-going vessels or real estate. Very few containers were built during the financial crisis in 2008 and 2009, so 2010 even saw a shortage of them.
We at Magellan tend to avoid specialised containers such as refrigerated containers, known as reefers, and tank containers, as markets and market participants are often too small to predict long-term trends over five years with any certainty; investments in those niche markets are riskier.
How did Magellan make the investment offer so secure?
We apply all the necessary due diligence in our investment offerings. That is, we keep an eye on quality while purchasing containers, selecting liner-shipping companies as lessees, and in how we draw up container leasing agreements. We only conclude long-term agreements that liner-shipping companies can’t terminate, eliminating the need for container management by other container lessors or management companies, or any other third parties.
This eliminates the risk of container returns from liner shipping companies before term – so far, all of our containers have gone through at least five to seven-year leasing periods without a hitch. We only do business with the top 25 liner shipping companies with good credit ratings to match as lessees.
We survived 2008/2009 without losses, so we can keep our own buoyancy in rough seas. Have the other forms of investment also proved their mettle like this? Apart from that, we have independent auditors look at our leasing agreements with liner shipping companies to confirm the quality of our agreements for our investors. Finally, the auditors have confirmed that we’ve always paid back our investors since our first offering as predicted. So far, every one of our investors has seen every penny of their investment returned as promised by Magellan.
What of the future for the investor market with respect to new financial regulations on investment products and consultants?
Every investor has to give some thought to which investment has delivered the goods over the last 10 years and hasn’t robbed the investor of a good night’s sleep. What kind of investments were they – bank securities? Investment company portfolios with hot-shot asset managers? Or tangible assets in the real economy?
Tangibles are and always have been the mainstay of economic development. But what tangible asset can compete with a shipping container on flexibility in shipping goods? Laws and politicians won’t ever be able to change this in any lasting way by creating new rules and taxes to get the financial markets back under control. We’ll simply adapt to any new rules affecting the shipping industry. Remember that with Magellan, you’re investing in two tonnes of good hard steel – not in securities or other financial products.
This is a difference we’re proud of, a difference that our investors appreciate. The last financial crisis has shown how the markets have been moving away from the real economy, sinking astronomical sums into paper securities rather than tangibles. We think that we at Magellan have been playing a significant part in restoring investor confidence in the real economy over the last decade. More than 10,000 investors have shared our confidence so far.
