By Debbie Carlson
Ever since the Covid pandemic exposed the fragility of global supply chains, the shipping industry has lurched from one market-disrupting event to another. The latest is the Iran war, and Iran's closure of the Strait of Hormuz, which typically carries 20% of the global seaborne trade in oil.
"It used to be, 'OK, an event comes and goes.' Now events come and stay, " says Omar Nokta, managing director and equity analyst at Clarksons Securities, an investment bank to the shipping industry that traces its roots back more than 150 years.
As a result, the shipping business has become much more complex. "Trying to peel back that onion of complexity is a difficult task," he says.
Nokta has covered the shipping industry since 2004 at a variety of firms, and recently returned to Clarksons after four years at Jefferies Securities. He spoke with Barron's on April 8 about the structure of the industry, the latest disruptions, and his favorite shipping stocks. An edited version of the conversation follows.
Barron's : Everyone is aware of shipping and benefits from it, but most of us know little about the industry's structure. How does it operate?
Omar Nokta: In terms of the global fleet, there is conventional shipping, which generally involves oil tankers, dry bulk cargo ships [which carry loose material such as iron ore and coal], and container shipping [goods carried in standardized steel boxes]. Together, those make up about 75% of all activity. People judge the health of the shipping industry by those three segments and how they are performing. That's where you'll find the biggest number of companies, and the lenders and insurers that focus on those segments.
The other type of shipping capacity involves vessels that transport chemicals, LNG [liquefied natural gas], cars, and things like that.
What percentage of global trade relies on shipping, and what sort of cargo is shipped the most?
About 90% of all trade is handled on an oceangoing basis. It is the cheapest relative to any other method of transport. Crude oil and refined products, iron ore, and coal are the biggest bulk commodities shipped.
Freight rates are the prices charged to ship goods, and can be assessed on a time charter or in the daily spot market. Crude-oil tanker rates are mostly set in the spot market. How does that work?
The crude-oil tanker trade spot market is a dynamic, volatile market affected by oil prices, refining markets, and other pricing structures. A daily freight rate of, say, $2 a barrel to go from the Middle East to Asia is meaningful for a shipowner. If the rate goes to $2.25 a day, that could lead to substantial earnings.
Tanker rates can go from $30,000 one day to $100,000 the next day because of the underlying volatility of the energy markets. Operating expenditures are about $10,000 a day, so any incremental increase in rates drops to the bottom line. Depending on the ship, an owner can get paid more. In a rising market, there is interest in time charters, which allow a company to lease a vessel for between a few months and a few years.
Why were tankers commanding higher freight rates than usual even before the Strait of Hormuz closed?
There were two main issues. One was the effect of limited investment over the past several years in very large crude carriers, or VLCCs, the supertankers that carry two million barrels of oil. You had an aging fleet, little added capacity, and then U.S. sanctions. There are about 900 VLCCs in the global fleet; 150 are sanctioned by the U.S. and aren't compliant, so there is a true fleet of 750 compliant vessels.
Also, the Organization of the Petroleum Exporting Countries increased production and brought a significant number of barrels to the market. Its members use VLCCs. A loss of ships and an increase in cargo had already boosted rates to more than $225,000 a day compared with the historical rate of $40,000 to $50,000. This was the first time during an oil shock where tanker rates were already high.
Container ships are more likely to operate on time charters than the spot market. Shipping rates and capacity were tight before the Iran war. What was going on?
Container-shipping freight rates surged during the Covid pandemic because of all the buying activity, and then collapsed after the destocking effort. We were expecting a multiyear downturn in rates, but the Houthi [strikes] in the Red Sea changed everything. Some 20% of container trade normally transits through the Suez Canal, and 90% of those ships [which reach the canal through the Red Sea] started to divert their course, causing container freight rates to spike back up again as trips took longer.
How has the effective closure of the Strait of Hormuz affected the industry?
Broadly, it generally has benefited earnings, and tankers have benefited the most. They are in hot demand to carry cargo much farther than in normal times. Rates spiked to $400,000, but only a handful of owners got those rates. We are back down to the $200,000-a-day market, and rates for the biggest supertankers are down from pre-Hormuz levels.
All other asset segments are materially higher because there has been such a dislocation of vessels and origination points. Any vessel available to carry cargo out of, say, the U.S. has been paid a significant amount because there is limited supply in the near term.
Only 3% of the container trade goes through the Strait of Hormuz, but container rates have gone up, as well. However, higher fuel costs are eating the increase. This is the slowest part of the year for the container trade. It will be interesting to see what happens once peak season approaches, in 2 1/2 months.
What is happening with dry bulk rates?
Dry bulk spot freight rates have been hovering around unchanged levels. A Cape-size vessel, or the biggest ships and ones that carry iron ore, are averaging between $25,000 and $30,000 a day fairly consistently. That sector has done fine, and you could almost say that the quality of earnings is probably better because it isn't influenced by geopolitical events.
What is the potential long-term impact of the current conflict?
Things are going to become more expensive. Insurance is a big part of that. There are now substantial areas in the world where there is a war-zone insurance premium. The industry is digesting the talk of a toll through the Strait of Hormuz. Under international maritime law, you have free passage to go through the Strait of Hormuz, but that is now being tested. The industry wants to see how this will all play out, but paying a toll to Iran, which Iran has proposed, isn't realistic for public companies. They would be running afoul of sanctions if they transact with Iran.
How do you analyze shipping companies?
Ships transact on a regular basis. We know what a ship is worth, whether it is a young vessel, an older vessel, or mid-age. A simple approach is modeling a net asset value for each company, where we look at the value of the assets, take away the net liabilities, and have an implied equity value. That gives us a starting reference point for the company's worth.
Then we look at free cash flow to estimate how quickly cash is coming in versus the depreciation of the fleet. Free-cash-flow yields relative to the stock price are probably the most indicative of value for these stocks. We also look at the management team.
What separates a good management team in shipping from a mediocre one?
How well do they manage the vessels in the fleet? Do they have a strong operation that is able to capture the freight rates that we see today? Then there is how they handle issues of timing related to making investments versus sales of ships, and putting vessels on longer-term contracts versus keeping them in the spot market.
How does a company use its balance sheet? The industry went through a difficult time in the 2010s because of overburdened balance sheets, and now many companies are staying lean to be flexible for the future.
What is your outlook for the sector?
We have a generally constructive outlook. The age of the fleet matters, and because of it, we are most excited about tankers. They have a useful life of 25 years, although they get repurposed around 20 years. The average age now is 14 years. Dry bulk is hovering under the radar. Investment in dry bulk ships has been limited, and it is just a matter of time before it becomes an issue and causes rates to rise. Container freight rates may be moving sideways. Containers saw a huge wave of investment, and that fleet is getting younger.
However, all segments are competing for shipyard space. Containers and LNG carriers are fighting against tankers and dry bulk ships. It has become expensive to find a shipyard slot available before 2030. In order for ships not to be turned to scrap, freight rates have to remain elevated.
Which tanker stocks do you like?
Teekay Tankers is one of our favorites. Earnings have strengthened considerably. The company is expected to report first-quarter results [on May 6] that are going to be another improvement from prior periods. Second-quarter guidance potentially will be at record levels. Teekay trades below our net asset value assessment of $79 a share, but is generating substantial cash flow. We expect its year-end 2026 net asset value to reach $90 a share, since cash flow is growing much more aggressively than the fleet is depreciating.
Teekay has zero debt on its balance sheet, and nearly $1 billion in cash. Investors get exposure to a strong freight rate market and a balance sheet that protects you in case something unforeseen happens.
Do you have another favorite?
Scorpio Tankers has a similar dynamic. Most of its assets are exposed to the spot market, and the company has a net cash position. It isn't debt-free, but being net cash with spot exposure provides levered upside. At the same time, the downside is protected with the balance sheet.
DHT Holdings is a pure-play VLCC company. It has shown a strong ability to time investments well and charter its ships long term. In the past three to four months, it has placed many of its ships on term charters at historically high rates. It is giving up some of the near-term spot excitement, but for longer-term revenue visibility and strength that we think improves the quality of the earnings profile.
Do you like any dry bulk cargo companies?
Star Bulk Carriers has a strong management team in terms of timing investments. It is also focused on capital returns and buying back stock when it makes sense. Net asset value is over $30 a share, and the stock is trading at $24. The cash-flow profile isn't as exciting as in tankers because dry bulk freight rates are midcycle at this point.
But there is optionality on the dry bulk market getting tighter, and then, eventually, a potential exponential increase in freight rates once it hits a tipping point. If LNG is offline for an extended period, thermal coal is a big beneficiary. That is the second-biggest cargo moved in dry bulk.
Do you have any picks on the container side?
The ship-owning side is attractive. These companies are able to put their vessels away on long-term charters of about three to five years. The two companies we like are Danaos and Global Ship Lease.
Both companies have such strong revenue backlogs that if you add up the Ebitda [earnings before interest, taxes, depreciation and amortization] from that backlog and the scrap value of the fleet, you get something higher than their enterprise value. They offer compelling value and cash flow that exceeds enterprise value. The markets aren't giving any credit to the residual useful life of the ships beyond scrap.
Thanks, Omar.
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April 22, 2026 14:36 ET (18:36 GMT)
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