To The Moon

$YZJ Maritime(8YZ.SI)$ $YZJ Shipbldg SGD(BS6.SI)$ $Teekay Tankers(TNK)$  

Post has been written with the help of AI to paraphrase my thoughts and research

# Maritime sector personal tak Oct 26

## Shipping Disruption Creates Significant Upside, but Timing Risk Is Rising

### Investment view

The current Middle East shipping disruption may still have room to drive further upside across the maritime sector. Longer voyages, vessel rerouting, ship-to-ship transfers, and constrained vessel availability are supporting higher ship-rental and charter rates.

However, the opportunity is highly cyclical. The same disruption that benefits shipowners and maritime operators today could eventually trigger excessive new-build orders. Once the conflict ends and shipping routes normalize, the resulting oversupply could cause freight rates, vessel rentals, and asset values to fall sharply.

My current view is that Yangzijiang Maritime Development (SGX: 8YZ) may have greater near-term operating leverage to this environment, while Yangzijiang Shipbuilding (SGX: BS6) offers a more established but less immediate way to participate in the cycle.

## Yangzijiang Shipbuilding: strong orderbook, limited near-term repricing

Yangzijiang Shipbuilding appears to be benefiting from strong demand and a full orderbook. The broader market data indicates that its orderbook had reached approximately **US$22.3 billion**, with year-to-date orders exceeding **US$1.03 billion**.

The key issue is contract timing.

A significant portion of its vessels was contracted last year, before the current increase in vessel valuations and charter rates. As a result, Yangzijiang may be building ships that were sold at yesterday’s prices while the market value of comparable vessels has since increased materially.

This creates a potential opportunity cost:

- The orderbook provides earnings visibility.

- Existing contracts protect future utilization and revenue.

- But much of the upside from today’s higher ship prices may accrue to the eventual shipowners rather than the shipbuilder.

- The company may have locked in ship prices before the current surge in replacement values and charter economics.

Therefore, a large orderbook should not automatically be interpreted as full participation in the current shipping windfall. The profitability of each contract depends on the price at which the vessel was booked, the cost of construction, and the delivery timeline.

## Yangzijiang Maritime: more direct exposure to current vessel economics

Yangzijiang Maritime is exposed more directly to vessel values, charter rates, leasing economics, and maritime operations. It is therefore positioned differently from the shipbuilding business.

The potential advantage is that 8YZ can acquire, finance, or deploy vessels at current market prices rather than relying mainly on contracts signed before the shipping squeeze. If the company acts quickly and is willing to accept an appropriate level of operational risk, it may be able to capture unusually high margins while the vessel shortage persists.

The tactical opportunity is particularly relevant for smaller tankers and vessels supporting ship-to-ship transfer activity. A significant portion of new orders may be required to support the transfer and redistribution of oil affected by the disruption around Hormuz. (See the recent announcement from YMD on the new vessel order)

The economics are being supported by two forces:

- Existing vessels are spending more time at sea because of route diversions.

- More vessels are required to move the same quantity of oil when voyages become longer.

In practical terms, longer voyages reduce the effective supply of available ships. Even without a physical reduction in the global fleet, the fleet’s transport capacity falls when ships spend substantially more time completing each voyage.

## The high-margin scenario

The most bullish scenario for Yangzijiang Maritime is participation in higher-risk ship-to-ship transfer activity that allows oil to continue moving out of Hormuz toward Asia.

If 8YZ is willing and capable of operating in this segment, charter margins could be extremely attractive. During a supply-constrained market, the immediate availability of a vessel may matter more than whether it was built to the highest specification. The crucial attributes are that the vessel is:

- Cheap enough to acquire or charter.

- Available immediately.

- Technically suitable for the cargo and route.

- Deployable before the shipping bottleneck eases.

In this environment, speed and availability may matter more than premium vessel quality.

## The uneconomic long-haul scenario

The alternative scenario is far less attractive. If vessels must take longer routes from the Red Sea, around the Cape of Good Hope, through the Pacific, and then into Asia, the operating economics could deteriorate rapidly.

A voyage of approximately **49 days**, with vessel rental costing around **US$1 million per day**, implies roughly **US$49 million** of vessel hire before considering fuel, insurance, crewing, port costs, financing, and other operating expenses.

For a large shipment, the transport cost could rise from approximately **US$3 per barrel to US$26 per barrel**. At a refinery intake of around **500,000 barrels**, that represents:

- At US$3 per barrel: approximately **US$1.5 million** of transport cost.

- At US$26 per barrel: approximately **US$13 million** of transport cost.

- Incremental increase: approximately **US$11.5 million** per cargo.

At that level, the problem is no longer simply whether a vessel can earn a high charter rate. The delivered cost of the oil may become so high that some refineries or commodity buyers may not want to purchase the cargo at all.

This is why chartering is highly dependent on route selection, cargo economics, counterparty quality, and operational expertise. Without experience in managing multiple large tankers, a company could earn apparently high daily rates while still generating poor risk-adjusted returns.

## The cycle risk

The current shipping disruption is potentially fuelling the entire maritime ecosystem:

- Shipowners benefit from higher charter rates.

- Vessel values increase.

- Shipbuilders receive more orders.

- Maritime investors benefit from higher asset valuations.

- Operators can earn substantial returns from constrained capacity.

But these same incentives create the next risk. If high charter rates persist for long enough, shipowners will order too many new vessels. Once the conflict ends and normal routes reopen, the market could move from shortage to surplus.

The likely sequence is:

1. Conflict and rerouting constrain effective vessel supply.

2. Charter rates and ship values rise.

3. New-build orders accelerate.

4. New vessels are delivered with a lag.

5. Shipping routes normalize.

6. Effective vessel supply increases sharply.

7. Freight rates, charter rates, and asset values fall.

The most important risk is therefore not necessarily the end of the current rally. It is being exposed to the maritime segment after the cycle has turned.

## Conclusion

Yangzijiang Shipbuilding and Yangzijiang Maritime offer different forms of exposure to the current shipping cycle.

**Yangzijiang Shipbuilding** has strong visibility from its approximately **US$22.3 billion orderbook**, but a substantial portion of that book may have been contracted before vessel prices and charter rates rose. It may therefore benefit from volume and execution, without capturing the full upside of today’s market valuations.

**Yangzijiang Maritime** has potentially greater direct upside because it can deploy vessels at current market prices and participate in the present vessel shortage. If it is sufficiently fast, flexible, and willing to accept operational risk, its margins could be very high—particularly in ship-to-ship transfer activity.

The risk-reward profile is nevertheless asymmetric. A long-haul voyage lasting approximately **49 days** at around **US$1 million per day** can quickly become uneconomic, especially when transport costs rise from **US$3 to US$26 per barrel**. The company’s route selection, fleet-management capability, and ability to exit before new vessel supply arrives will be critical.

My current view is that the shipping cycle may not yet be finished. Unless the market has already fully priced in the geopolitical developments and shipping disruptions seen around the middle of the year, there may still be room for further acceleration. But this is a tactical, high-risk opportunity—not a permanent structural re-rating of the maritime sector.