CITIC Construction Investment: Supply tightening raises the transportation price center; route restructuring widens the supply gap.

People’s Finance Network, April 1—CITIC Securities Investment Research report says that the supply side’s long-term tightening or a permanent upward shift in the VLCC freight rate center of gravity will occur. The supply-side landscape may shift or rewrite the underlying investment logic of the tanker industry; over the years, capital expenditures have been absent from the old-economy sectors, laying a solid foundation for the long-term freight rate center of gravity to be pushed upward. After the industry cycle peaked in 2008, global shipbuilding capacity was significantly cleared out. Current capacity remains at only 60% of the 2011 peak. Shipyards in Japan and South Korea are deeply trapped in labor shortages, and domestic large-scale tanker new capacity will not be released until the fastest 2029 to 2030. Among the global VLCC fleet, the share of vessels with more than 15 years of age is as high as 41%, which is about to enter the scrapping cycle. In 2026–2029, new ship orders will only be enough to cover 22% of replacement demand, making a capacity gap prominent. Coupled with the fact that the non-standard shadow fleet with over 20 years of age is difficult to return to compliant markets, persistent capacity shortages may lift the freight rates’ bottom center of gravity for tankers. Geopolitical disruptions are reshaping routes, widening the supply–demand gap. Ongoing geopolitical turmoil in the Middle East amplifies vulnerabilities on the supply side of oil transport, while also reshaping the global energy shipping pattern, further widening the industry’s supply–demand gap. The Strait of Hormuz faces blocked passage, leading to about 10% of the VLCC fleet and 4.5% of Suezmax-type vessels being stuck; another 10% of capacity is on standby and grounded. As a result, core effective capacity is greatly lost. A disruption to Middle East oil supply forces Asian buyers to switch to purchasing in the Atlantic basin; short voyages turning into long voyages more than doubles vessel utilization rates, and most idle capacity is absorbed by long-distance demand. On top of that, as countries across Asia fill gaps in energy security, they are accelerating the expansion of strategic crude oil reserves, providing long-term support for higher incremental demand in oil shipping.