Nobody Goes There Anymore, It’s Too Crowded

One of our favorite paradoxes is a quote from Yogi Berra, “Nobody Goes There Anymore, It’s Too Crowded.”  Having just returned from Marine Money, we have the same attitude about some of the paradoxes involving shipping stocks.  Given the happiness of shipowners – not one bankrupt company among the many attendees – much time was spent discussing the unhappiness of equity investors and the cheapness of stock prices relative to the opportunities and strength of balance sheets.  There are many reasons, from capital allocation to governance issues.  Addressing the former, there are no easy answers.  Significant stock buybacks tend to occur at the peak of cycles and are not always the best choice as they may be for non-cyclical industries.  There are also differences between commodity shipping segments and shipping as infrastructure where buybacks do indeed make sense. 

Moving from the equity prices to actual shipping fundamentals, there were some exciting moments at the conference. The most electrifying was when Tor Olav Troim announced he was prepared to order two dual-fuel VLCCs for delivery in 2026 and 2027.  He noted, “I’m quite sure the upturn we have in front of us is stronger than 2003 and 2008. The whole Fredriksen fortune was created in those five years.  Now it’s coming again.  If you want to play the cycle, you’d better go in the beginning.” We would note that tankers were not the only opportunities.  One of the most intriguing panels was shipping as infrastructure.  These are vessels such as car carriers that function as logistical solutions, many with long-term contracts.  On one topic there was full agreement among all the panels.  There is a shortage of shipyard slots, with higher quality yards now offering 2027 deliveries at high prices.  The order book in tankers and dry bulk remains tight given the rapid aging of the fleets.  We find that much of the good news is not priced into shipping equities.  On Friday, computer models sold many names in fear of a global recession.  Then again, the algos didn’t attend Marine Money.  We consider that to be our edge.