Global infrastructure expansion creates investment opportunities

Global infrastructure expansion opens up exciting investment opportunities.

To help revive the economy, governments the world over are putting in place vast stimulus packages with a focus on investment in infrastructure. This dynamic move creates interesting opportunities for investment, with the potential to bring long-term benefits for investors over the next few decades.

Fragility of maritime trade infrastructure is plain to see

At the start of the pandemic it was expected that maritime trade, including container shipping, would experience a severe decline. However, the pandemic altered consumers' purchasing behavior in crucial ways: Contrary to expectations, the demand for finished consumer goods increased; however, this was met with an inadequate supply of shipping capacity and empty containers. The mismatch caused a container crisis that slowed down and delayed the entire maritime supply chain. In addition, shortages of labor, capacity, trucks, and other inland transport systems at ports lengthened the process of returning containers to the system.

Just when container spot freight rates seemed to be settling down after reaching COVID-19 all-time highs, the fully loaded container ship Ever Given got stuck in the Suez Canal for several days; as well as causing traffic to back up, the incident led spot freight rates to skyrocket around the globe.

Increasing demand for consumer goods led to rising spot freight rates

Increasing demand for consumer goods led to rising spot freight rates

Shanghai Containerized Freight Index: Development of weekly spot rates, December 9, 2017 to April 9, 2021
Abbreviations: FEU, 40-foot (12.2 meter) equivalent unit; TEU, 20-foot (6.1 meter) equivalent unit
Source: United Nations Conference on Trade and Development (UNCTAD), Credit Suisse

Given the current trend, it will take several months for the effects of the disruption in the Suez Canal on the entire maritime supply chain to stabilize and for the system to work smoothly again. The pandemic and the incident in the Suez Canal have demonstrated how fragile supply chains are and the tremendous amount it can cost the economy when they do not function properly.

From ship to rail – Europe's railway infrastructure is expanding

To ensure that consumer goods go from the container ships to their final destinations, the ports need to be connected to working domestic infrastructure. In Europe, the creation of the Rhine-Alpine Corridor, a railroad network that is supposed to support up to four lanes of traffic, represents the most important link for freight transport from the Mediterranean to the North Sea. Once all countries involved have expanded their rail networks, it will result in an increase in capacity as well as seamless scheduling around passenger transportation.

Stimulus packages should help revive the economy

In response to the pandemic, many countries are seeking to build back their economies in the wake of the COVID-19 recession by focusing on infrastructure improvements designed to kick-start the economic engine.

In late March 2021, the US administration under Joe Biden unveiled a multi-trillion-dollar infrastructure package aimed at modernizing the country's infrastructure and putting it on a more sustainable footing. The comprehensive stimulus program is to be spread out over the next eight years, with plans to initially spend around 2.3 trillion US-Dollars to upgrade the nation's infrastructure with the aim of getting the US economy back on track for several years of growth.

In Europe too, the EU has designed its EUR 750 billion recovery fund to not only prop up sectors that are struggling due to the COVID-19 recession but also to build greener, more digital, and more resilient economies.

Exciting new investment opportunities around the globe

China introduced similarly extensive fiscal stimulus packages. In addition, the promise to become carbon-neutral by 2060 raises hopes of a significant shift in infrastructure investment as part of the 14th five-year plan, which takes effect this year.

This momentum opens up many exciting investment opportunities. Our "Infrastructure – Closing the gap" Supertrend is well positioned to benefit from the political focus on infrastructure and the investments planned for the coming decades.

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