What's Going on With Shipping Stocks with J. Mintzmyer of Value Investor's Edge

The current high rates and strength in the tanker market are a result of a four-to-five-year looming imbalance between vessel supply and demand for oil transport. Factors include environmental regulations making older tankers difficult to operate, increased sanctions enforcement against the 'dark fleet' (e.g., Venezuela interdiction), rising oil demand from China, and strategic market consolidation by entities like Cineor, which acquired 15% of the publicly available VLCC fleet. These factors were in play well before recent Persian Gulf events.

The tanker markets are incredibly strong. The rates are very high and that happened well before there was any sort of action in that region... There's been a looming imbalance for four to five years... There are sanctioned vessels... we've seen this current administration actually step up and take action against some of the dark fleet vessels... Cineor... has been building a very large stake in the publicly available BLCC fleet and they're up to about 15% of the publicly available ships right now.

While the container market experienced a boom-bust cycle tied to the COVID-19 supply chain crisis, the Houthi attacks in the Red Sea provided a second, significant catalyst. Despite limited effectiveness in sinking ships, the fear and increased war risk insurance costs led 70-80% of global container ships to divert around Africa. This rerouting dramatically increased ton-miles, effectively absorbing excess capacity and extending the period of high rates for container carriers.

The second catalyst for containerships which really extended the life... was the Houthies... they managed to divert 70 to 80% of the global global containers ship cargos... diverting the container ships around the entire continent of Africa... driving a ton miles... the ton mile growth was significant from that.

The dry bulk sector, particularly Capesize carriers, faces a significant supply crunch. 45-50% of the current fleet is projected to become obsolete within 3-5 years due to age and environmental regulations, while the order book for new vessels is only 10%. This supply deficit is exacerbated by China's strategic investment in the Simandou iron ore mine in Guinea. Transporting iron ore from Guinea to China is over three times the distance of current routes from Australia, meaning even flat Chinese iron ore import growth will lead to a 3-4% annual increase in dry bulk ton-mile demand, tightening the market for years.

There is a significant mismatch on ages. There's about 45 to 50% of the fleet which is trending towards obsoletin the next 3 to 5 years... the order book's only about 10%... there's a major new mine in Guinea called Simondo... From Guinea to China... is over three times the distance from Australia to China... every cargo that they replace takes three to four times the number of ships.

ZIM, an Israeli container ship liner, experienced extreme volatility, soaring from an IPO price of $15 (and initial dip to $11-12) to $90, paying out a record $17+ dividend in one year. After a crash to $10-12, the company is now subject to a complex takeover bid by Hapag-Lloyd at $35 per share. The deal involves splitting the company to navigate Israel's 'golden share' veto rights, with a projected close date in March-June 2027.

Zim took on a life of its own... they were going to IPO at 15 bucks a share... it went from like 11 bucks to the next year and a half or so later it was about $90... they had one dividend alone that was more than $17... Azim had crashed all the way back to $10... now the deal is hop Lloyd is coming in at $35 a share... Israel has the right basically to veto any sort of corporate change... they're going to like split the company... projected close date is like next spring, anywhere from March to June of 2027.