CITIC Construction Investment: Supply tightening raises the transportation price center; route restructuring widens the supply gap.

China Citic Securities’ research report states that, on the supply side, long-term tightening—or even a permanent increase—will lift the shipping rate benchmark for oil tankers. A shift in the supply-side structure, or a re-writing of the sector’s underlying investment logic, and the long-standing absence of capital expenditures in the old-economy fields have laid a solid foundation for moving the shipping rate benchmark higher over the long term. After the industry cycle peaked in 2008, global shipbuilding capacity cleared out significantly; currently, capacity remains at only 60% of the 2011 peak. Shipyards in Japan and South Korea are mired in labor shortages, and domestic large oil tanker new capacity will be released no earlier than 2029 to 2030. Among the global VLCC fleet, the proportion of vessels with more than 15 years of age is as high as 41%, and they are about to enter the decommissioning cycle. Meanwhile, new ship orders in 2026 to 2029 are only enough to cover 22% of replacement demand, making a capacity gap increasingly apparent. Combined with the non-standard “shadow fleet” of vessels older than 20 years that is difficult to re-enter compliant markets, persistent capacity shortages are likely to push up the bottom shipping rate benchmark for oil tankers.

Geopolitical disruptions are reshaping routes and widening the supply-demand gap. The situation in the Middle East continues to disrupt operations, magnifying the fragility of the supply side of oil transportation, while also reshaping the global energy maritime shipping landscape and further widening the industry’s supply-demand gap. Disruptions at the Strait of Hormuz prevent passage, resulting in about 10% of the VLCC fleet and 4.5% of the Suezmax-type fleet being stranded; in addition, another 10% of capacity is held in standby and waits, with part of the fleet stranded. As a result, core effective capacity is significantly reduced. Middle East oil supply cutoffs force Asian buyers to shift purchases to the Atlantic basin; the shift from short-haul to long-haul routes doubles fleet utilization, with most idle capacity taken up by long-distance demand. Combined with Asian countries’ efforts to plug gaps in energy security and the acceleration of expanding strategic crude oil reserves, long-term support is strengthening for rising incremental oil shipping demand.

(Source: People’s Finance and Information)