Shipping equities turn geopolitical risk into an advantage

New research from investment bank Jefferies charts how shipping shares have shifted from being negatively correlated with geopolitical risk during the first decade of this century to moving increasingly in tandem with global instability since 2021.

The new report is bullish on tankers, predicting that shares have further room to run, with rates forecast to taper more slowly than the market currently anticipates, in no small part down to the geopolitical correlation. 

“Since 2021, shipping stocks have also moved with our Geopolitical Risk Index every year, and we expect owners to keep capitalizing on the dislocation into 2027/2028+,” the report predicts. 

The underlying economics were neatly summarised by Navios Maritime Partners boss Angeliki Frangou during an August earnings call.

“The longer ton-mile is like removing from the supply of vessels,” Frangou explained, pointing out that rerouting caused by the Red Sea and Hormuz crises meant ships were spending considerably longer at sea.

Jan Rindbo, CEO of Norden, made a similar observation at last month’s Splash Singapore conference.

“The world fleet is breaking down into smaller fleets,” Rindbo said, explaining how sanctions, regional conflicts and environmental regulations were fragmenting what was once a relatively unified global merchant fleet. The result is declining fleet efficiency, with more vessels required to transport the same quantities of cargo.

Nikolas Tsakos, founder and CEO of Tsakos Energy Navigation, acknowledged the extraordinary opportunities created by the crisis during his company’s September earnings call.

“This is uncharted territory, which we are taking advantage of carefully and steadily,” Tsakos said, while stressing his preference for peace even at the expense of today’s record returns.

Jefferies believes the tanker rally has further to run, although not necessarily at today’s spectacular spot rates. The bank has lifted its 2027 VLCC earnings forecast from $60,000 to $65,000 a day and its LR2 projection from $30,000 to $34,000, arguing that persistent trading inefficiencies, ageing fleets and future oil inventory rebuilding will support earnings long after the current crisis subsides. It estimates that 51% of crude tankers are at least 15 years old, potentially helping absorb an orderbook equivalent to around 27% of the existing fleet.

Not everyone shares that optimism. Norden’s Rindbo has warned that the tanker market could be approaching its peak, prompting the Danish group to reduce tanker exposure and redirect capital towards dry bulk.

The current VLCC surge has reached around 17 times its long-term average, dwarfing the peaks recorded in earlier shipping cycles. Yet those previous booms eventually surrendered most of their extraordinary earnings premiums, often within just a few months.

The VLCC line on the Clarksons chart ends at today’s extraordinary levels, leaving the subsequent trajectory unanswered.

The industry’s history suggests that exceptional earnings eventually correct. What makes this cycle different is that nobody can confidently predict when the geopolitical distortions sustaining it will disappear, or how quickly an apparent shortage of tankers could turn into a surplus.

UK consultancy Maritime Strategies International has its own take with where each sector is on their own journey through the shipping cycle, carried below.

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