The Name of the Game: Stacking Edges

October Shipping Report: The Catalysts Edition

Investing in shipping is simple. Get in when supply is down and demand is up, and exit when that changes. Yet simple is not the same as easy.

To figure out when (not) to invest, we need to explore both sides of the equation. As for any old economy business, we must start with supply, simply because it is inelastic compared to demand. In other words, supply is always slow to respond to demand dynamics.

Then, what to look for?

Supply side in shipping includes two categories of variables:

• Primary: order book, fleet age, yards capacity

• Secondary: dry dock schedule, average speed

The first category includes long-term and cyclical variables. What they have in common is their slow change, and their impact is measured in quarters and even years. For instance, shipyard capacity can not be increased overnight. It takes quarters to repurpose yards’ production line, for example, from bulkers to LPG carriers.

The second bucket has short-term variables. They are characterized by fluidity, meaning they can fluctuate in a wide range over a brief period. Moreover, they have an impact, measured in months. A case in point is the dry dock schedule. Dry docking removes ships from service for a short time, usually a few weeks or even shorter.

The best thing is that we can stack edges. What does it mean?

Seek segments where primary and secondary supply variables are in sync. For example, a single-digit order book, aging fleet, and busy drydock schedule. The more the better.

So far, so good. However, tight supply is half of the puzzle. What we need is a limited supply, combined with robust demand. In short, we need a deficit.

Here comes the tonne-mile demand. Unlike supply, both components, tonne and mile, are explicitly erratic. In a matter of months, they can move from an extreme peak to the bottom. This is due to erratic economic activity in the short term, along with unexpected events such as port congestion and choke point issues.

Port dynamics and choke point status fall into their own category. They serve as catalysts that amplify the already existing market regime. For example, the Houthis disrupted the tanker market that was already operating in a mild deficit.

Last week was anything but boring for shipping investors. The Gaza peace agreement and the US/China port fees got the headlines.

Middle East

Since December 2023, the traffic via the Red Sea has dropped considerably as a result of the war between Israel and Hamas. Here is the most recent traffic data:

Basically, the mile variable has increased considerably because ships had to sail via the COGH instead of the Red Sea. Nevertheless, the situation in the Middle East is shifting gears again.

The Gaza ceasefire agreement was signed on October 10, 2025. ​Following the agreement, Houthi leader Abdul-Malik al-Houthi reportedly ordered his forces to halt attacks on commercial vessels. However, the group has not issued any formal statement regarding commercial shipping policy changes.

At least for now, the attacks on Israeli-linked ships probably will continue, considering the news from yesterday:

Major shipping companies have adopted a uniformly cautious stance. Maersk characterized the ceasefire as “a positive and much-needed development” but stated it remains “too early” to assess implications for Red Sea operations, emphasizing the company will only resume transits “once a sustainable and long-term security solution is in place”.

To recap, a peace agreement in Gaza is a necessary yet insufficient precondition to have the Red Sea back to normal. The Houthis’ alliance with Iran and their own ambitions in the region are big known-unknowns. In plain language, the frequency of attacks will decline, but at least for now, it will not go to zero.

The takeaway for shipping investors is that one of the driving forces behind robust tonne-mile demand is weakening. Depending on how the situation evolves in the Middle East, we may see a gradual return of non-Israeli vessels in the Red Sea.

Port Fees

The trade war between China and the US adds a new variable to the equation: port fees. Why does it matter?

First, the short answer. The fees will push the impacted shipping companies to alternative destinations, resulting in extended routes and, consequently, increased tonne-mile demand.

Now the long one.

On October 14, both the US and China simultaneously imposed reciprocal port fees targeting each other’s shipping vessels.

American port fees target three distinct categories with escalating costs through 2028. Under Annex I, Chinese-owned or operated vessels face charges of $50 per net ton starting October 14, 2025, increasing incrementally to $140 per net ton by April 17, 2028. Annex II addresses Chinese-built vessels operated by non-Chinese entities, imposing the higher of either $18 per net ton or $120 per container initially, rising to $33 per net ton or $250 per container by 2028. Annex III targets foreign-built vehicle carriers with a $150 fee per Car-Equivalent Unit (CEU).

China responded within days of the US announcement. The Chinese Ministry of Transport’s retaliatory framework mirrors US policy structurally but targets US-owned, operated, flagged, or built vessels, as well as those owned or operated by entities where US interests hold 25% or more equity, voting rights, or board seats.

Frankly, how the Chinese authorities are going to estimate that threshold is highly questionable; let’s not forget that shipping is anything but a transparent business. We shall see.

Chinese port fees begin at RMB 400 ($56) per net ton on October 14, 2025, escalating to RMB 640 ($90) in April 2026, RMB 880 ($123) in April 2027, and RMB 1,120 ($157) by April 2028. Vessels built in China are entirely exempt from fees regardless of ownership or operation, as are empty vessels entering Chinese shipyards solely for repairs.

The financial implications are staggering. COSCO Shipping and Orient Overseas International (OOIL) face the harshest consequences, with analysts estimating COSCO could incur $1.5 billion to $2.1 billion in additional annual costs by 2026, while OOIL faces up to $654 million in fees. Container shipping costs could rise 10% to over 40% per box by 2028, depending on vessel ownership and construction origin, with importers of low-margin goods particularly vulnerable to eroded profitability.

Dry bulk faces equally dramatic impacts. An estimated 179 million metric tons of dry bulk cargo were at sea en route to China when the fees took effect, suddenly facing massive cost increases. According to estimates, dry bulk vessels transporting coal and raw materials could face port charges of up to $3 million immediately, potentially exceeding $10 million by 2028 for the largest vessels carrying nearly 200,000 tons. The China-US port fee adds approximately $20 per ton to a single Brazil-China iron ore voyage, instantly tightening global ship supply and placing significant upward pressure on freight rates as owners refuse to accept US-linked risk without premiums.

China’s new port fees will affect oil tankers, too. Approximately 30% of crude oil tankers, while only 19% of product tankers, face exposure. There is one more factor to consider for tankers: the size of the sanctioned fleet.

The chart above shows that 17.85% of dirty tankers and 8.74% of clean tankers are subject to sanctions. Stacking edges matters not only on the supply level, but also on the demand level. The increased number of sanctioned tankers and reciprocal port fees offsets the impact of (potential) Red Sea traffic recovery.

China plays its game well, leveraging its strategic industries: critical minerals and shipbuilding. The West, on the other hand, relies heavily on China for new vessels and all kinds of materials. This is an asymmetric opportunity for China to exploit, and the CCP does it.

To recap, the port fees game has a tangible impact on shipping. This is good news for investors in floating steel.

Summary

One exogenous shock is gone only to make way for a new one. The Red Sea might gradually come back into service, reducing the pressure on the supply chains. However, the port fees game takes its place as a catalyst for increased tonne-mile demand.

Containers, tankers, and bulkers are heavily impacted. Nevertheless, crude tankers are my preferred segment to bet on new developments. Remember, the name of the game is stacking edges. The crude oil tankers bring to the table three of three: tight supply, robust demand, and multiple catalysts that affect both. Port fees add extra miles to tonne-mile demand while sanctions further reduce the already limited vessel supply. Strong seasonality is the cherry on the top.

PS: another catalyst for crude tankers is cooking. India may stop importing oil from Russia.

Here is a quote from BreakWave’s X account:

-Indian Oil Corp. purchased a VLCC oil tanker shipment of Guyana’s Golden Arrowhead crude from Exxon Mobil via a tender

-It’s the second trade this week by Exxon Mobil of a shipment of Guyana crude to an Indian refiner, following Wednesday’s purchase by HPCL -Prior to now, Guyana hadn’t shipped any crude to India since at least November 2021

Position accordingly.

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For more actionable and asymmetric ideas on crude tankers and beyond, consider TheOldEconomy premium plans: Researcher and Strategist.

Thank you for being part of TheOldEconomy. Here’s to your continued growth and success, one wise decision at a time.

Invest wisely,
Mihail Stoyanov
Founder, TheOldEconomy

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