Tanks A Lot

If you look at year to date indices, shipping equities have unperformed. Yet, there have also been opportunities to do very well. When shipping stocks go on sale – they do so violently. I have written about dry bulk names, which were a screaming buy when Capesize rates were $3,000 per day in Q2 ‘20. Today, they are pegged at $33,066 per day. If at the beginning of August, you had bought a well-governed container ship lessor, you would be up 41.7% as of early October. Even an abysmally governed one would have returned 21.7%. The challenge in all three instances is that you had to have conviction when charter rates looked grim. In shipping, the best returns are to had when to quote Baron Rothschild, “There is blood on the streets, especially your own.”

I continue to see opportunities in tankers. Industry experts have highlighted that there are few cargos as OPEC maintains discipline. Ships are coming off floating storage. Spot VLCC rates are currently below opex at $8,441 per day. In this morning’s Tradewinds News, a story about poor tanker rates states, “With limited shipments to the US and Mediterranean, the exchange (Note: Baltic) has assessed the TCE rates on multiple tanker routes in the negative territory.” The hope, if there is one, is the winter market of 2021. It is not an encouraging environment.

However, we live in a volatile world. Long-term economic forecasts are useless, but given the US election, so are short-term ones, too. The opportunity in tankers is contango. My expectation is that vaccines will be announced by December, although widespread deployment is unlikely until 2H2021. In the meanwhile, lockdowns are being announced in Europe and in New York. Consequently, near term oil demand looks weak, while six to nine months from now it should be fine. I see the potential near term for contango storage again, and therefore higher tanker rates. I may be wrong, at which point I may decide to wait with some equities with little good news priced in. But if I am right, tanker equity prices should trade higher from here.