Thread by @walnutavevalue

Shipping thread:

There's been a long bear market in shipping rates. And new ship building activity dropped post 2010. And more than half of the shipyards close

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If we look at the sub-segment of tankers, and specifically clean tankers, in the last 5 years supply has gone up in terms of dead weight tons. In 2019, the deadweight tons went up by another 6 million, but the TCE rates have still gone up a lot.

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Further, demolition activity for tankers dropped in 2019 because it was high in 2018 (181 tankers) and the TCE rates for both dirty and clean tankers was high in 2019.

What this all mean? There's inflection now where supply is (finally) constrained

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hellenicshippingnews.com/just-4-vlccs-s…

And this does not even account for the impact of IMO 2020. Shippers have delayed putting in scrubbers and have moved some ships from clean to dirty because of the high rates for dirty tankers currently

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reuters.com/article/us-glo…

So supply for clean tankers is coming down because:
1. Docking for installing scrubber (IMO 2020 related)
2. Ships going from clean to dirty tankers

And demand for clean tankers is up due to transporting LSFO between bunkering ports and refineries

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blogs.platts.com/2019/03/04/imo…

Debt financing for ships was at the lowest level since 2007 in 2018. Many European banks have stopped lending and it’s now mostly Chinese lease back financing

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benzinga.com/node/15048071

Why has financing dried up on shipping?
a. Long bear market in spot rates
b. Banks - Financial regulation risk (Basel)
c. Risk: what will IMO 2030 mean?
d. PE funds invested lot in starting 2010, but no IPOs since 2015, and funds nearing maturity

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benzinga.com/news/19/12/150…

Some owners are selling ships for stock of public shipping cos.

Christa Volpicelli, Citi: “If you go back and study companies that have announced these [ships-for-shares] transactions, you will see a very strong pattern of stock outperformance."

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freightwaves.com/news/stage-is-…

This chart shows clearly that capital inflows have dropped, and this means supply is going to be constrained.

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Of course, this is shipping, so caveat emptor. The operating leverage on these stocks is crazy. Any supply dislocations can send rates going crazy high! So ultimately it comes down to being a bet on shipping rates.
But the odds look really good here.

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Scrubber retrofit is keeping ships in yards for 45 days currently. This is supply taken out for 45 days. Where will rates go? Likely that it is already baked in the high rates currently

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This picture captures the whole situation well:
1. Ships on order are less than number of ships that are older than 15 years. These old ships might NOT be economical with IMO 2020 changes
2. Demand going up a bit

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Quote from $DSSI CEO on this situation:
"probably the best order book that I’ve seen in 25 years",
"fundamentals of exporting of shale oil out of U.S. Gulf on long-haul movements are tremendously accretive"
"Getting compliant fuel all over the place .. going to help rates"

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And Peter Lynch: "If you want to buy a ship, it's a 2 or 3 year wait. People haven't ordered ships for a long time, because by the time one comes in, prices may be down again"

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That's a beautiful order book chart

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