For equity and debt investors, we are headed into the Fall conference season. Our first conference is the 15th Annual Capital Link Shipping & Marine Services Forum. We find conferences invaluable in our investing process. This year, from the end of Marine Money on June 23rd to Labor Day a shipping equity investor was able to generate significant returns in diverse segments ranging from crude tankers, LPG, product tankers, OSV to Ultra-Deepwater drillships. On an annualized basis, during this 90-day plus period, returns in some shipping equities equaled or surpassed the majority of all equities. But as we are wont to say, the past and $6.00 gets you a cup of coffee. We are looking forward to September 12th in London with Capital Link.
There are the known unknowns and unknown unknowns. Thank you, Donald Rumsfeld. We have two examples. Shut down refineries in the West, and open them in the Middle East, and you will have more ton miles for transporting distillates. This phenomenon is predictable. On the other hand, in 2023 one has drought impacting the Panama Canal, also lengthening ton miles. We don’t remember anyone predicting congestion in Panama six months ago. These factors can make significant differences in outcomes for shipping returns, in many cases superseding in the short-term obvious ones such as operating expenses.
Among the big known unknowns, we are focusing on the following questions. Do we have a cold winter in Northern Europe? Although natural gas storage is full in Europe, it only represents two months of usage. Lower winter temperatures would result in more demand for LNG ships. Do Chinese tourists start flying to Paris again? It would mean even more appetite for jet fuel, which would increase product tanker demand. Does California successfully shut down their conventional refineries? A potential gift to clean tanker rates. Does China launch aggressive infrastructure stimulus? It is the elephant in the room for dry bulk. We don’t know any of these answers, but then again, no one does with certainty. At the same time, we suspect in January 2024 we will be writing about something different that has moved shipping markets. It is one of the reasons why we are boarding the plane to the UK on Wednesday evening, because the edge in investing in shipping comes from both the known and recognizing the unknown.
