The Guggenheim Global Shipping ETF (NYSEArca: SEA) is off more than 4% over the past two weeks and more trouble could be ahead for the shipping exchange traded fund due to overcapacity and slack commodities demand.
SEA, which tries to reflect the performance of the Dow Jones Global Shipping Index and holds high dividend-paying companies in the global shipping industry, has been confounded by weak global commodities demand for over a year. Some market observers point to the 20 million barrels of oil sitting on ships as another indicator of the ongoing glut – traders have stored oil on ships, betting on higher prices in the future. [Shipping ETF Sees Tailwind from Oil Storage Demand]
“Given the continued overcapacity headwinds and easing containerized trade demand, we believe these freight rate gains are less likely to stick, and we expect rates to remain under pressure as we approach the slack winter season, particularly following a muted peak season,” according to a Wells Fargo Securities note posted by Barron’s.
Looking at the sector, the long-established area has a long history of data dating back two centuries. Moreover, investors won’t be blindside by technological advances ass they are relatively easy to predict.
Nevertheless, the shipping sector faces some risks, including a potential global slowdown or currency disruptions, which could both diminish trade volumes and pressure shipping rates.