This week, we read the Q-2 2022 letter from a respected natural resources hedge fund. In addressing closed positions, they mentioned their exit from a well-known dry bulk shipping name. They wrote, “We like the shipping industry; it is a fascinating industry with significant volatility (which we like) and a useful link to the real economy that makes tracking the industry informative. But in the portfolio, shipping firms are businesses we date, not businesses we marry.” It is a common attitude among investors, and such a strategy may enable one to earn high single digit to low double-digit returns. However, if you want to produce interesting returns for yourself or your investors, there’s nothing like going to the proverbial wedding chapel. This past week’s price action in tanker equities provides support for the concept of long-term investing.
According to a note published by Fearnley Securities, on Thursday, August 11, 2022, tanker stocks year to date are up between 45% to 237%, depending on the company. It seems our names are starting to attract generalists and traders, who are seeing the fundamentals that tanker companies have discussed in the last year come into play. Reality set in once product tanker earnings calls started in late July and crude tanker calls began in August. Capacity is tight, ton miles are increasing, and the order book to fleet is the lowest it has been since 1985. Versus 2020 when rates were driven by crude contango storage, we are now seeing more sustainable increases in demand, at a seasonally weak part of the year and with China not actively participating. Better yet, the market is starting to see three-year time charters from very smart players.
The ideal time to have built a position in the tanker names was in February and March of 2022. Having added to positions then, it wasn’t clear to me when the turn in tanker markets would occur, but the value and the positive risk reward were visible. I also had the advantage of being informed by Capital Link. Still, the window is not closed. Those who buy tanker stocks today may do well over time because the current cycle is being driven by fundamentals and may do even better once China begins normal imports of crude oil again. On the other hand, I am the first to admit there is still a lot that can go wrong. My experience does prove you can successfully buy and hold shipping stocks over time just like any other industry. In the meantime, I recommend that you mark your calendars for September 21 for the Capital Link 14th Annual Maritime Forum. I plan to be there as should you.