The underlying logic that both sides of Pacific Shipping (02343) benefit from tight platforms reshaping supply and demand

The global shipping market in September 2026 is experiencing a rare resonance: daily rents for oversized tankers once broke through US$1 million, a record high; at the same time, the Baltic Dry Bulk Index rose by about 85% year to date, standing at a high level of nearly five years.

Oil tankers and dry bulk carriers are two types of businesses, but they are currently stuck at the same bottleneck: global platforms are full of orders, new ships cannot be handed over for a while, and there are fewer and fewer usable ships. Pacific Shipping (02343) is doing the “silent” business of dry bulk cargo. It doesn't have stories of getting rich like oil shipping, but its operating ability has outperformed the market index for a long time, and its dividend payments are generous enough. In the shipping sector, it has instead become a relatively underrated choice.

A concentrated outbreak of global transportation shortages

According to the Zhitong Finance App, the tension in the oil transportation market has gone beyond normal. Surveillance by the shipping intelligence agency Windward shows that the daily rent for oversized tankers loading from the Persian Gulf and crossing the Strait of Hormuz once reached the $1 million mark. In terms of partial voyages, the freight rate for each barrel of crude oil is about 26 US dollars, accounting for nearly a quarter of the current oil price of about 100 US dollars per barrel, far exceeding the normal situation where freight only accounts for a very small portion of the value of goods. According to data from Clarksons Research, the average daily revenue of the world's largest tankers rose to about 651,000 US dollars, nearly doubling in a week. Prices for routes from West Africa to Asia that do not have to go through the Strait of Hormuz also increased at the same time. This shows that the problem has evolved from a war risk premium in a single region to an insufficient number of usable ships worldwide.

According to information, this round of worsening shortages is directly related to the attack on Saudi Arabia's East-West oil pipeline. After the Houthis attack caused damage to the pumping station, the Yanbu crude oil shipment was interrupted for a while, and Saudi Arabia had to transport more crude oil from the port of Rastanura in the Persian Gulf. After passing through the Strait of Hormuz, it carried out ship-to-ship transfers near Sohar, Oman. Industry insiders said that Saudi Arabia has arranged for about 60 million barrels of crude oil to use this model in September and October, with an average of about 1 million to 1.5 million barrels per day. This arrangement alleviated the crude oil exit problem, but the cost was that the already tight capacity of tankers was further occupied. Currently, about 15% of the world's 900 super-large tankers are concentrated in the waters off Oman, and the local capacity to expand ship-to-ship transfers is limited. At the same time, the Red Sea risk forced Saudi ships to reduce the number of passes through the Mander Strait, and some ships only needed to detour, causing the voyage to increase by about two weeks, further reducing effective capacity.

The impact of tanker tension has been transmitted to terminal energy costs. It's important to note that what the refinery is really concerned about is not the price of crude oil on the screen, but the cost of arrival of the crude oil after it arrives — which includes transportation, insurance, financing, and war risk premiums in addition to the price of crude oil itself. This means that a drop in oil prices does not necessarily equal a drop in refinery costs: if crude oil falls from 108 US dollars to 103 US dollars, but the transportation cost per barrel increases by 10 or even 20 US dollars during the same period, the total procurement cost of the refinery may rise. High freight costs will also directly erode refining profits. Refineries will either reduce long-distance procurement or transfer logistics costs to gasoline and diesel sales prices. The end result is that crude oil futures prices have declined, yet terminal fuel prices remain high.

In this context, Cathay Pacific Haitong pointed out that before the Middle East conflict, oil transportation had already entered a super bull market. War risk premiums, regional disorder, and loss of efficiency during the conflict drove new highs in freight rates. The recovery of the strait can be expected in the medium term, oil supply and demand will return to a high level, and inventory replenishment and Changjin Control Panel will be further icing on the cake. It is expected that profits will remain high for the next two years.

How to reshape dry bulk cargo when the platform is tight

The underlying reason for this tension is that the platform is full of orders for various types of ships, and additional capacity cannot be replenished in a timely manner. The same supply constraints also apply to the dry bulk market. The Baltic Sea Dry Bulk Index has increased by about 85% since the beginning of the year. The Simandou iron ore project has entered the climbing phase. The annual export volume is expected to reach 120 million tons. The long range from Guinea to China will significantly increase the demand for tons of nautical miles. After replacing Australian mining sources by an equal amount, in response to a net increase in capacity demand for about 116 Cape of Good Hope ships, the global iron ore trade tonne nautical mile demand has increased by about 9.3%. Furthermore, on the one hand, the superEl Niño phenomenon boosted demand for coal power generation, and on the other hand, it could restrict the passage of the Panama Canal, increasing the load reduction and detour of ships. CICC pointed out that factors such as US soybean exports in the fourth quarter, coal reserves in winter, and iron ore shipments on long-haul routes are all expected to keep dry bulk freight prices high.

The supply side is also tight. According to Clarksons data, dry bulk fleet supply increased by 4.4%/3.7% from 2027 to 2028. Effective capacity may be further tightened considering factors such as the decline in efficiency or withdrawal of old ships and the deceleration of ships under high oil prices. The entire industry accounts for only 14.22% of on-hand orders, far lower than the level of 75.59% in 2008. Higher prices for new ships and tight platforms are slowing down shipowners' willingness to build ships. Even if freight rates rise, effective capacity supplementation will be slow and lagging behind.

Geographical conflicts provide the possibility of an unexpected rise in demand, while tight fleets provide supply bottlenecks. Cathay Pacific Haitong believes that the continuation of the high oil transportation boom is expected to exceed expectations. Over the past five years, the shipping boom has relayed upward and has in turn triggered shipbuilding orders, driving the shipbuilding boom to continue to be high. It is expected that the current shipbuilding industry's capacity constraints will be better than the previous round, and it is expected to usher in a wave of VLCC orders to continue to ensure the continuation of the shipbuilding boom.

Pacific Shipping's interim report password

Pacific Shipping's own capacity strategy also reflects progress in restraint. The company's ongoing orders include 6 Handysize ships and 4 Ultramax ships, which are expected to be delivered from 2028 to the first half of 2029, and reserves the option of 2 methanol dual-fuel Ultramax, which is highly in line with the trend of tightening supply in the market. The boom in oil transportation and dry bulk are essentially two sides of the same supply logic.

What is more noteworthy is that in the context of the upward trend in the industry, Pacific Shipping's 2026 interim results did not simply follow the market, but showed significant excess profitability. In the first half of this year, the company achieved a turnover of US$1,106 billion, an increase of 8.5% over the previous year; net profit to mother was US$105 million, an increase of 310% over the previous year.

In terms of profit quality, the average daily revenue of the company's core business is 14,150 US dollars and 16,550 US dollars, respectively, which far exceeds the corresponding market indices of 1,950 US dollars and 2,370 US dollars. Market prices themselves also rose in the first half of the year, but the company's performance index did not narrow. This shows that excess revenue is not due to rising freight rates, but rather operational capacity itself. According to the Zhitong Finance App, this is due to the company's integrated operating platform, freight portfolio management, and customer network, making it capable of outperforming the index in the medium to long term in the highly fragmented dry bulk market with sharp freight rate fluctuations.

At the same time, the company's financial structure is equally sound. As of the end of June 2026, the company had net cash of US$157.2 million, promised working capital of US$673.6 million, and an interim dividend of HK15.5 cents per share, with a dividend ratio of approximately 100% of net profit. In the capital-intensive and cyclical shipping industry, this kind of dividend payment is not common.

CICC recently released a research report. Considering that the recent freight rate was better than this forecast, it raised Pacific Shipping's 2026/2027 profit of 37.1%/42.7% to US$2.41/257 million. The current stock price corresponds to 11.4/10.7 times the 2026/2027 price-earnings ratio, maintaining a strong industry rating, and raising the target price by 33.5% to HK$4.54 per share, with an upward margin of more than 10% compared to the current stock price.

Pacific Shipping's most direct recent catalyst comes from the profit visibility brought about by freight rate lock-ins. According to the company's announcement, about 78% and 82% of the third-quarter shipping schedules for Xiaoling and Super Flexible ships have been set, corresponding to average daily TCEs of 15,810 US dollars/day and 18,680 US dollars/day, respectively. The profit for the third quarter was basically in pocket, and the locked price was significantly higher than the average daily revenue achieved in the first half of the year. The immediate portion is also expected to be more flexible.

Meanwhile, the fourth quarter is the traditional peak season for dry bulk goods. Iron ore, coal, and grain will be shipped centrally during this period. Furthermore, the continued release of Simandou will also provide medium term support. CICC anticipates that production from Simandou iron ore is expected to continue to increase next year, driving demand for long-haul transportation. In addition, potential post-war reconstruction demand is also expected to increase.

Summarize

Taken together, the super-bull market in oil transportation is not an isolated phenomenon. Tight platforms, scarce effective capacity, and restructured trade patterns are also reshaping the dry bulk market. Pacific Shipping may not be the most flexible target in this cycle, but its surpassing the index's operating capacity, prudent capacity strategy, and generous shareholder returns make it a sound choice worth re-examining in the larger shipping cycle. While the market marvels at the million-day rent for oversized tankers, the silent rise in dry bulk may also be worth watching.