Shipping is one of the few industries where you can see most of next year's supply today. Ships take years to order, build and deliver, and they are registered, tracked and counted. That makes the cycle unusually readable, even if it never makes it predictable.
Supply: the fleet you can count
The supply side starts with the existing fleet and adds the orderbook, the ships already contracted at yards. Deliveries arrive with a lag of two to three years, which is why a wave of orders placed at the top of one cycle so often arrives at the start of the next downturn. On the other side, older ships leave the fleet through scrapping, and effective supply also moves with speed: a fleet that slows down to save fuel carries less cargo per year.
Demand: tonnes times miles
Demand is not just how much cargo moves, but how far. Analysts measure it in ton-miles. When trade routes lengthen, because a canal is avoided or a supplier is replaced by one further away, the same volume needs more ships. Some of the sharpest moves in freight markets have come from distance, not volume.
Why rates move so violently
Freight rates are set where supply meets demand, and the curve is steep near full utilisation. When almost every ship is busy, a small increase in demand can multiply rates. When there is slack, even strong demand barely moves them. That convexity is why shipping earnings can swing so much from one year to the next.
From rates to share prices
Ship values follow earnings, and equity markets try to price the cycle ahead of both. By the time rates are at their peak, the shares have often already moved. The question we ask is therefore not whether rates are high today, but whether supply and demand support them two to three years out.
How we use it
Before we look at a company, we look at its segment: the age profile of the fleet, the orderbook as a share of the fleet, scrapping candidates and the trade flows behind demand. Only then do we look at the balance sheet, the contract cover and the valuation. It is slower than chasing the latest rate print, and it is how we intend to invest.
This article is for information only and is not investment advice.
