Transportation assets can carry the load

In the wake of global supply chain transformations, businesses are reshaping how they manage inventory, manufacturing, and procurement. The challenges, from COVID-related single points of failure, to port and rail congestion, and geopolitical tensions, have spurred a shift toward flexibility and resilience.

Companies now employ strategies such as diversified global trade partnerships, colocation proximity to end markets, and just-enough inventory management to navigate uncertainties posed by ongoing social, political, and economic disruptions.

Investments in transportation assets and port infrastructure have surged, laying the groundwork for robust, multi-modal transportation networks as a distinctive and compelling asset class for long-term investors. As investors evaluate this opportunity, the following are key benefits of transportation leasing strategies and some guidance for choosing a strong investment partner.

Create long-term value. Transportation assets, such as railcars, intermodal containers, port equipment, and aircraft, are essential to all supply chains. Without them, production, manufacturing, and commerce ultimately stop. Accordingly, these critical assets are effectively part of the industrial and consumer base and can generate stable and predictable value for portfolios.

Resilience with steady cash flow. Transportation assets tend to last for up to 50 years (sometimes longer) and with structured, staggered lease contracts can withstand and mute economic cycles. These steady revenue streams over time offer reliable, risk-adjusted returns and cash flows that are attractive to investors seeking stable income and compounding growth.

Favorable (uncorrelated) return profile. Critical to global economies, transportation assets exhibit cash-generative, long-term returns with low to negative correlation to conventional investment strategies like public equities, credit, and many alternatives. Their reliance on lease revenues often results in performance gains during periods of inflation or rising interest rates.

Social and environmental impact. Investments in these assets contribute to economic growth, job creation, and environmental benefits. Assets like freight railcars and intermodal containers are among the most carbon-efficient industrial transport methods.

Partner with focused experts. Successfully navigating this landscape requires a partner with extensive operational acumen, meticulous portfolio management, and robust data-driven capabilities.

Operating assets require operating expertise. Domain-specific expertise is crucial to owning, operating, and managing operational assets. It is important to partner with a manager who has the required knowledge and relationships with operators, manufacturers, customers, and suppliers to invest across the spectrum of assets to create proprietary deal flow and to actively manage a portfolio that can maximize value and minimize volatility.

Portfolio construction matters. Diversification is paramount in supporting a steady course for transportation and infrastructure investments. Strategic portfolio alignment designed to create a properly diversified asset base can limit exposure to any single sector, commodity, counterparty, or asset to mitigate risk. Active portfolio management around these factors leads to return resiliency.

Data drives results. Strong investment partners should have a robust data framework. Informed, quantitative decision-making drives increased operational efficiency, profitability, and risk management. A partner can leverage advanced modeling and data science with an aim to enhance portfolio diversification and minimize risk to augment risk-adjusted returns.

As companies continue to proactively respond to an evolving supply chain, transportation and related infrastructure assets will have sustainable, secular demand. For investors interested in predictable, cash-generating value, the key to finding the right partner to access this asset class is operating expertise, portfolio diversification, and a data-driven process. This is the approach to carry the load through the long term.

About
For the last decade, Jason Koenig has been Founder and Managing Partner of ITE Management, an investment firm specializing in industrial transportation assets and related infrastructure, focused on generating cash yields and long-term uncorrelated returns. ITE has a dedicated approach across operating partnerships, portfolio and risk management, and data analytics.

_{This article originally appeared in Infrastructure Q2 2024: Preqin Quarterly Update. The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin and ITE Management accept no liability for any decisions taken in relation to the above.}