According to the Wise News app, GTJA issued a research report stating that the global oil shipping trade is undergoing a reconstruction, coupled with bottlenecks in oil tanker supply. The utilization rate of oil shipping market capacity has increased to or above the threshold, and it is expected that supply and demand will continue to improve in the next few years, and the economy and performance will rise beyond expectations, so it should be strategically valued. In the first half of 2024, the off-season will remain active, catalyzing optimistic market expectations. Changes in the expected future oil prices will affect the pace of trade, but short-term freight rates will not change the medium-term upward trend. The marginal impact of the reduction in the Middle East in the second half of the year has weakened, and the rigidity of the supply side has become more obvious in the high season. The economy is expected to improve, and high performance is expected. Changes in the situation in the Red Sea will not affect the super bull market of oil shipping options. Maintain the buy rating for Nanjing Tanker Corporation (601975.SH), COSCO Ship Energy (600026.SH), and China Merchants Energy Shipping (601872.SH) shareholdings.

GTJA's main opinions include:

The United Nations Security Council passed a resolution to cease fire in Gaza, which has raised concerns about the continued impact on the Red Sea market.

Since mid-December 2023, the Houthi armed forces have frequently attacked ships related to Israel in the Red Sea. The Red Sea is a necessary route for transportation through the Suez Canal. As the situation in the Red Sea continues to escalate, the volume of traffic through the world's major shipping artery, the Suez Canal, has been reduced, and rerouting around the Cape of Good Hope has become necessary, with sustained and increasingly significant impact on the global shipping industry. The recent cease-fire resolution proposed by the United Nations Security Council in three stages in order to achieve a comprehensive ceasefire in the Gaza Strip has raised concerns about the continued impact on the Red Sea market. GTJA believes that the impact of the situation in the Red Sea is difficult to assess, and it is necessary to consider the different degrees of impact on different shipping markets separately.

Shipping: The impact of the Red Sea is significant, and supply and demand improvements have driven freight rates to a new high in one year.

Shipping has benefited from the alliance of liner shipping operations, as the Asia-Europe route has taken the lead in large-scale rerouting operations around the Cape of Good Hope. The supply and demand of mainline shipping has significantly improved in recent months and freight rates have sharply risen, reaching a new high in the past year. On the supply side, the volume of liner traffic through the Suez Canal has been reduced by more than 90%, resulting in effective transport capacity consumption of about 10% for the entire industry. The estimated new container ship (TEU) plan for 2024 was an 11% increase, which has increased by nearly 5% from January to May; however, the supply gap is still significant. On the demand side, second-quarter exports have grown more than expected, which may be due to multiple reasons, such as stock replenishment in Europe and the United States, concerns about freight rates/tariffs leading to early shipment, and early launch of the peak season. Some ports have recently experienced congestion or further increased short-term supply chain disruption risks. Currently, the proportion of container ships in hand orders accounted for 21%, and a planned 6% will be added in the next six months. Shipping has a high degree of correlation with the impact of the Red Sea. If the impact of the Red Sea continues, the sustainability of high freight rates will depend on the pace of demand and new ship deliveries.

On the supply side, the tanker traffic through the Suez Canal has been reduced by more than 90%, and the consumption of effective transportation capacity for rerouting around the Cape of Good Hope accounts for about 1-2% of the entire industry, mainly resulting in longer distances for small tankers such as Afrava and Suez. As the utilization rate of oil shipping capacity is close to the threshold, the freight rate is becoming sensitive to marginal changes in supply and demand.

On the demand side, second-quarter exports have grown more than expected, which may be due to multiple reasons, such as stock replenishment in Europe and the United States, concerns about freight rates/tariffs leading to early shipment, and early launch of the peak season. Recently, some ports have been congested or there has been a further increase in short-term supply chain disruption risks. Currently, the proportion of container ships in hand orders accounted for 21%, and a planned 6% will be added in the next six months. The high season of shipping has a high correlation with the impact of the Red Sea. If the impact of the Red Sea continues, the sustainability of high freight rates will depend on the pace of demand and new ship deliveries.

Oil transport: The impact of the Red Sea is relatively limited and does not change the super bull market in oil transport options.

Oil transport is operated in a single vessel mode, which had limited shipping avoidance during the initial outbreak of conflict. As the situation escalated and the risk increased, the passage of oil tankers through the Suez Canal has gradually been reduced, and it has now been cut by nearly sixty percent. In the past, only 10% of the world's oil shipping volume passed through the Suez Canal. The estimated effective transport capacity consumption for rerouting around the Cape of Good Hope accounts for only 1-2% of the entire industry, which mainly lengthens the voyage for small oil tankers such as Afrava and Suez.

GTJA believes that the impact of the situation in the Red Sea will help the oil shipping companies' off-season performance, but more importantly, it will once again confirm that the utilization rate of oil shipping capacity is close to the threshold and has entered the stage of embracing the unexpected, so it should be strategically valued. Changes in the situation in the Red Sea will not affect the trend of continued improvement in oil supply and demand in the next few years, and oil transport still has the super bull market option, and the upturn in the economy and sustained high performance will exceed expectations.

Risk warnings: Economic volatility risk, geopolitical risk, safety accidents risk, etc.