Should I invest in a shipping container or it is a scam?
Banks are paying the lowest term deposit interest rates in a generation - somewhere between 2.5% and 4%, depending on amount and term. And there is considerable trepidation about where the sharemarket will head.
So why not broaden your investment horizons and buy a shipping container or two, leasing them and getting a 12% per year guaranteed return?
This is one of the hot offerings being advertised online and in some airline magazines by a Brisbane-based group called Own Your Own Shipping Container (OYOSC). It represents Pacific Tycoon, based in Hong Kong.
What's the deal with investing in shipping containers?
According to the online marketing blurb, an investor can hand over $US4100 (the $A price varies with the exchange rate) to buy a 40-foot (about 13-metre) shipping container backed by ownership documents from OYOSC.
The container is immediately leased, according to Corr Piccone, of OYOSC.
He says there are no other out-of-pocket expenses such as management, insurance or payment-processing fees, which are paid by Pacific Tycoon. The container has an average lifespan of 15 years.
The deal is that the investor receives a "guaranteed" 12% per year, paid quarterly. The push is on for investors to buy five of these containers.
Then the price comes down to $US4000 apiece, in which case you get a return of 12%pa paid monthly. This is called a fixed-plan lease. The containers must be paid for with cash.
There is also an "aggressive deployment plan lease", under which the leasing company sublets the containers on short-term contracts generating a higher income stream.
This return is variable so there are no guarantees.
But Piccone says that to date this system has consistently outperformed the fixed-return option and has earned more than 20%pa over the past two years.
Investors don't know where the container goes or what it carries. But they are told that it is insured against damage or loss. This assumes that the insurance is actually in place and that the insurer will pay up.
Subject to your own accounting advice, the containers may qualify for a 10% annual depreciation allowance. It's painted as a trouble-free investment: you pay the money, sit back and wait for the returns to roll in.
What's the downside of investing in shipping containers?
This is an unregulated investment. Piccone says that because investors are buying a physical asset, no prospectus or regulation is required.
The Australian Securities & Investments Commission (ASIC) won't comment on the scheme or whether it has received any complaints.
Piccone and Helen Thomas, who appears to be his partner, have been involved in selling property and ATM machines or leases for some years.
Investors who own a container for three years can sell it back to Pacific Tycoon at the original purchase price.
If investors want their money back before three years, they will get market value for the used container. The container has to be taken out of hire and inspected for damage.
Piccone says he can't give an exact figure for a one-year to three-year buyout figure but estimates that it would not be less than 20% below the amount paid.
What if something goes wrong?
Investors are dealing with a company based overseas, apparently in Hong Kong, with no physical office in Australia to visit if anything goes wrong. Piccone says the company operates out of two or three homes or apartments in Brisbane.
There is nowhere investors can view their container - not that this means much since they all look much the same anyway!
If anything goes wrong - if, for instance, the returns are late - the only contact is an email or phone call to Piccone.
The corporate regulator would no doubt say the investment is unregistered and based abroad and therefore not its responsibility.
Getting financial compensation if anything goes wrong would involve taking legal action in Hong Kong. That is likely to be an expensive exercise with an uncertain outcome.
A guaranteed return of 12% sounds great in today's investment climate. It is more than four times what you would earn on a term deposit, and that should indicate a fair element of risk.
An attractive return on an asset that is not linked to sharemarket gyrations or interest rate cuts. No loans are involved so there are no margin calls or mounting debt difficulties. Investors can't lose more than what they put in.
It's an unregulated scheme with no physical head office accountable to anyone in Australia.
For me, alarm bells were ringing when I was about halfway through reading the online offer document. My view is that it is a gamble.