Surging 154% in a week! Freight rates for oil shipping rise during off-season. Is another maritime "chokepoint" blocked?

If the Strait of Hormuz, a crucial oil transportation chokepoint, is "blocked", some analysts believe that the market may seek alternative longer shipping routes. However, the extended voyages will trigger an increase in oil shipping freight rates, with crude oil freight rates expected to be more likely to rise than fall.

Perhaps influenced by this, oil shipping stocks surged. As of the morning close, Xingtong Co., Ltd. (603209.SH) hit the daily limit, China Merchants Energy Shipping Co., Ltd. (601975.SH) rose by 6.98%, and COSCO Shipping Energy Transportation Co., Ltd. (600026.SH) increased by 4.53%.

The oil shipping market was supposed to enter the off-season, but freight rates have instead surged. The latest data from the Baltic Dirty Tanker Index (BDTI) shows that as of June 19, the TD3C TCE reached $57,758 per day, the highest level since April 2024, up approximately 154% from $22,764 per day on June 12.

Wu Jialu, the chief researcher at CITIC Futures Research Institute, told a Caixin reporter that if the Strait of Hormuz is closed, oil shipping freight rates will maintain their upward trend, and crude oil freight rates will be more likely to rise than fall. The daily charter rate for VLCCs may struggle to fall below $50,000 per day and will fluctuate at highs. Meanwhile, this will also, to a certain extent, boost freight rates for Suezmax and Aframax tankers.

"The market will also seek alternatives, such as using the Saudi East-West Pipeline as a substitute and transporting via the Suez Canal, which extends the voyage. However, due to the situation in the Red Sea, this alternative will also drive up freight rates. Additionally, the market will use longer shipping routes from Russia, West Africa, etc., and the extended voyages will all trigger freight rate increases," another industry source told a Caixin reporter.

In response, Ni Yidan, the board secretary of COSCO Shipping Energy Transportation Co., Ltd., told a Caixin reporter that if the situation in the Middle East leads to changes in trade flows, shipping demand will also change, and the company's fleet will adjust its positioning accordingly. For example, if freight demand shifts to regions such as West Africa, the US Gulf, and South America, the fleet will also adjust to operate in these areas with freight demand.

According to the financial reports of publicly listed oil shipping firms, in 2024, COSCO Shipping Energy Transportation Co., Ltd.'s VLCC fleet accounted for 53% of operating days on the Middle East route. Both COSCO Shipping Energy Transportation Co., Ltd. and China Merchants Energy Shipping Co., Ltd. (601872.SH) have VLCC fleets with COA contracts or time charter contracts of varying durations signed with clients.

The aforementioned industry source further stated that COA contracts are similar to long-term agreement prices and can, to a certain extent, stabilize freight rate fluctuations. However, it is necessary to consider how the long-term agreements are structured, whether premiums and discounts are agreed upon, and whether they are linked to indices. Additionally, if the duration of long-term agreement contracts is short, they involve negotiated prices, and spot freight rates have a significant impact on such contracts.

In addition to the oil shipping market, the container shipping market may also be affected by the situation in the Middle East. However, a freight forwarder told a Caixin reporter that they have not yet received any news from shipping companies regarding changes in freight rates on Middle East routes.

Liner companies have also announced that they will temporarily maintain operations on the Middle East route. Among them, Maersk stated in its latest announcement that its fleet is still sailing through the Strait of Hormuz at present, but it will reassess the situation based on available information. Meanwhile, it will continue to monitor the security risks posed to its specific vessels in the region and is prepared to take responsive actions when necessary.

CMA CGM also stated that, at the current stage, it is conducting transportation activities in the Middle East Gulf region as usual, with operations and logistics chains remaining unchanged.