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Notes -
It's never been a better time to be a Greek shipping magnate with some balls. Oil tankers are making unheard of profits.
The break-even rate for a VLCC (very large crude carrier) is something like $30,000/day. Last year, the market was already tight. I was pretty happy when a tanker company I invest in signed a year-long contract at $74,000/day.
Now, I really wish they hadn't. The rate for a year long charter has more than doubled. But what's really crazy is what tankers are earning when they sail from the Gulf of Oman (just outside the Hormuz) to China. The rate is now over $400,000/day. A round trip voyage takes over 40 days. They can make $20 million for a single voyage. A newbuild VLCC costs $130 million and lasts 20-30 years. Ship owners can earn this back in a single year.
But back to the big balled Greeks.
There's another market that is even more lucrative: The Hormuz trade. This involves sailing a smaller ship into the Hormuz, grabbing oil, and then out again, doing a ship-to-ship transfer in the Gulf of Oman. I have no idea what they are making but it's obscene. It's possible they are paying for their vessel with every voyage. Fuck insurance. What's the point? And Iran's attacks are pretty weak. When a ship is attacked, it rarely does serious damage. They haven't sunk one in ages as far as I know. People are making generational wealth. I hope the crew is compensated adequately.
This is technically a sign to sell any cyclical. It just didn’t work this cycle with AI picks and shovels because demand kept increasing. But in general when you can recoup the costs of a big capital expenditure quickly it’s a good sign to sell the assets because the market will end up overbuilding capacity.
Yes. The key factor for cyclicals is the capital cycle. For shipping, this is the order book. Fortunately we have some visibility here. We know how many ships are coming. Any orders placed now won't arrive for 5 years.
Longer term, I'm bullish about bulk shipping (coal/iron) because the order book is empty.
Tankers are in a medium position.
The container ship order book is full.
So we know the order book. The question becomes how much profit the tankers can make and distribute before the cycle ends. A company like Frontline will pay dividends equal to at least 30 of its share price in the next 18 months. Since everyone in shipping has been burned a million times, the good companies don't rush to buy new ships. Companies like Frontline, Starbulk, Hafnia, and DHT pay out almost all their profits as dividends. This is good behavior in a cyclical industry.
Memory chip investors, on the other end, will likely end up poor. The windfall profits these companies make are not being distributed, they are being reinvested into new capacity. (Note, that I am not an expert on this sector so I am less sure here).
While your statement about cyclicals is true on a general level, its important to understand the dynamics driving each sector.
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