What is the global transportation asset class?                                              

Transportation refers to non-public equity investments in transport assets, including ships, planes, and railcars, essential for facilitating global trade. Another name sometimes used is ‘moving infrastructure’.

As the lifeblood of global trade, transportation assets play an indispensable role in connecting markets, driving economic growth, and enabling the modern, interconnected world we live in today. Transport assets can offer investors the potential for attractive yields that compare favourably to traditional fixed income. The asset class can serve as an important diversifier in portfolios.

What’s happening now?

Geopolitical conflicts and tensions, shifting global supply chains, and a continued need for investment supporting decarbonisation efforts underpin our positive 12- to 18-month outlook for the transportation sector. The transportation asset class is expected to maintain its low correlation to public markets and other alternative asset classes while delivering diversified source of consistent income-oriented returns.

Given transportation’s resilient and stable returns in the past several years of volatile markets, we expect the asset class to continue providing investors with reliable returns and income. We attribute this resilience to these assets' key function in driving the global economic engine by moving raw materials and finished goods to their next stage in the value chain.

As global supply chains shift due to sanctions and conflict, key commodities must be sourced further away from their end markets, leading to forecasted strength in rates for leasing transportation assets, even in the face of slower growth in global demand.

An important theme for the asset class is reducing the transportation sector’s impact on global emissions. Innovative fuel solutions ranging from methanol and biomass sources to hydrogen and ammonia are being researched as low carbon emitting energy sources but require further investment, research and development to become commercially viable.

With these new fuels will come increased requirements for investment in modifying existing assets, designing and constructing next-generation assets, and the associated global infrastructure to support these new fuelling methods. Attaining financing is increasingly linked to environmental performance as environmental, social and governance (ESG) standards rise.

Where are we seeing opportunities?

Against a weaker global economic macro backdrop, we have several preferred strategies:

A diversified portfolio: A diversified approach to core-plus transportation investing allows for shifting to the subsectors with the best relative value. For example, the Covid-19 pandemic significantly impacted the aviation sector. As such, our capital deployment was tactically redirected to the maritime and energy logistics sectors, where industry fundamentals remained strong.

Energy transition: With the severance of gas pipelines from Russia to the European Union, we continue to like investments in assets that directly support the energy transition. These include next-generation liquefied natural gas (LNG) carriers, offshore wind farm maintenance and installation vessels, and charging infrastructure for electric vehicles (EVs). The supply chain disruption in natural gas markets is expected to continue through 2024 and beyond, with traditional gas pipelines to the European Union being supplemented or replaced by LNG carriers acting as floating pipelines from North America and the Middle East, creating further supply tightness and continued profitability for asset owners.

Partnering with leading operators: Partnering enables the asset owner (investor) and operator to develop solutions that reduce the carbon footprint along the operator’s supply chain. In anticipation of changes coming to global industry standards across the maritime and land transport sectors, such partnerships enable technology transfer and capital risk sharing.

Why J.P. Morgan Asset Management for global transportation?

• Over USD 13 billion in total value committed to transportation assets since 2011
• USD 8.8 billion in gross asset value under management
• 1600+ transportation leases with high quality counterparties
• Invests in 15 unique asset types across five major sectors of transportation

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