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After enjoying record rates and profits over the past few years mainly due to the Covid-19 pandemic, high inflation and massive supply chain disruptions, the shipping industry could be in for a sharp downturn with Barclays warning that shipping rates could fall below pre-pandemic levels.
Last year, we saw freight rates for commodity shipping and supertankers surge to new records as traders were vying to get in on a highly profitable widening of the difference between spot prices and futures prices following Putin’s invasion of Ukraine.
Freight rates for very large crude-oil carriers (VLCC) along the Middle East Gulf to China route reached as high as $180,000 a day while VLCC time charter rates for floating storage jumped to as much as $120,000 per day.
But easing inflation and alleviated supply chain logjams have led to rates being cut by half from around September though they still remain elevated above pre-pandemic levels, “The unprecedented pandemic-led boom in freight rates has peaked,” Jonathan Roach, a container shipping analyst at London-based Braemar, wrote in a report.
Meanwhile, rates for very large ships capable of hauling 2 million barrels of crude fell more than 60% in a matter of weeks after OPEC+ cut production and reduced releases from U.S. reserves lowered seaborne volumes. Barclays is now warning that rates could slide further to levels last seen before the pandemic hit in late 2019.
Consequently, the outlook is now murkier for erstwhile high-flying shipping and tanker companies. Last year, commodity shipping stocks--but not container stocks--such as Tsakos Energy Navigation (NYSE: TNP) and Teekay Tankers (NYSE: TNK), dry bulk carrier owners Genco Shipping & Trading (NYSE: GNK), Golden Ocean (NASDAQ: GOGL), and liquefied natural gas (LNG) carrier owner Flex LNG (NYSE: FLNG) all soared into double-and triple-digit returns alongside tanker stocks such as Scorpio Tankers (NYSE: STNG), Nordic American Tankers (NYSE: NAT), Euronav (NYSE: EURN) and International Seaways (NYSE: INSW).
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.