Tight shipyard slots reshape supply and demand: the underlying logic behind The Pacific Shipping (02343) benefiting on both sides

Title context: Tight shipyard slots reshape supply and demand: the underlying logic behind The Pacific Shipping (02343) benefiting on both sides Text: The global shipping market in September 2026 is experiencing a rare resonance: VLCC daily rates once broke through $1 million, setting a historic high; at the same time, the Baltic Dry Index has risen about 85% year-to-date, standing at a near-five-year high. Tankers and dry bulk carriers are two different businesses, yet they are currently stuck at the same bottleneck: global shipyard slots are fully occupied by orders, new ships cannot be delivered anytime soon, and the number of usable vessels is increasingly insufficient. The Pacific Shipping (02343) is in the "silent" dry bulk business. It does not have the get-rich-quick story of oil shipping, but its operating capability has long outperformed the market index, and its dividends are generous enough. In the shipping sector, it has instead become a relatively undervalued choice. Concentrated outbreak of global capacity shortage According to observations, the tension in the oil shipping market has exceeded normal levels. Monitoring by shipping intelligence agency Windward shows that this month, VLCCs loading from the Persian Gulf and transiting the Strait of Hormuz once saw daily rates reach the $1 million mark. Converted on some voyages, this corresponds to about $26 per barrel of crude oil, accounting for nearly one-quarter of the current oil price of about $100 per barrel, far exceeding the normal situation in which freight accounts for only a very small portion of cargo value. Clarksons Research data shows that the average daily earnings of global VLCCs rose to about $651,000, nearly doubling in a week. Routes such as West Africa to Asia that do not need to pass through the Strait of Hormuz also saw simultaneous price increases, indicating that the problem has evolved from a war-risk premium in a single region into a shortage of globally available vessels. It is understood that the worsening of this round of shortage is directly related to the attack on Saudi Arabia's East-West oil pipeline. After the Houthi attack damaged pumping stations, crude loading at Yanbu was once interrupted, and Saudi Arabia had to ship more crude from Ras Tanura in the Persian Gulf, then conduct ship-to-ship transfers near Sohar, Oman, after passing through the Strait of Hormuz. Industry insiders said Saudi Arabia has arranged about 60 million barrels of crude oil for September and October using this model, averaging about 1 million to 1.5 million barrels per day. This arrangement alleviated the problem of crude oil outlets, but at the cost of further occupying already tight tanker capacity. Currently, of the world's approximately 900 VLCCs, about 15% are concentrated in waters near Oman, and local support capacity for expanded ship-to-ship transfers is already limited. At the same time, Red Sea risks have forced Saudi-flagged vessels to reduce passage through the Bab el-Mandeb Strait, with some vessels needing to detour, increasing voyage length by about two weeks and further reducing effective capacity. The impact of tanker tightness has already transmitted to end-user energy costs. It should be noted that what refineries truly care about is not the crude oil quotation on the screen, but the landed cost after crude oil arriveswhich, in addition to the price of the crude itself, also includes transportation, insurance, financing, and war-risk premiums. This means that a decline in oil prices does not necessarily equal a decline in refinery costs: if crude oil falls from $108 to $103, but transportation costs per barrel increase by $10 or even $20 over the same period, the refinery's total procurement cost may actually rise. High freight rates also directly erode refining margins, and refineries must either reduce long-distance procurement or pass logistics costs on to gasoline and diesel selling prices. The final result is that crude oil futures prices have already fallen back, while end-user fuel prices remain high. Against this backdrop, Guotai Haitong pointed out that before the Middle East conflict, oil shipping had already entered a super bull market. During the conflict, drivers such as war-risk premiums, regional disruption, and efficiency losses pushed freight rates to new highs. In the medium term, restoration of the strait can be expected, oil shipping supply and demand will return to high levels, and restocking and Changjin's control of the market will add further support, with high profitability expected to be maintained over the next two years. How tight shipyard slots reshape dry bulk The underlying reason for this tension is that shipyard slots are fully occupied by orders across vessel types, and new capacity cannot be replenished in time. The same supply constraint also affects the dry bulk market. The Baltic Dry Index has risen about 85% year-to-date. The Simandou iron ore project has entered the ramp-up stage of production, with annual export volume expected to reach as high as 120 million tons. The long voyage distance from Guinea to China will significantly lengthen ton-mile demand. After equivalent replacement of Australian ore sources, this corresponds to a net increase in capacity demand of about 116 Capesize vessels, and global iron ore trade ton-mile demand will increase by about 9.3%. In addition, the super El Nio phenomenon, on the one hand, boosts coal-fired power generation demand, and on the other hand, may lead to restricted passage through the Panama Canal, exacerbating vessel deadweight reduction and detours. CICC pointed out that factors such as U.S. soybean exports in the fourth quarter, winter coal restocking, and long-haul iron ore shipments are all expected to keep dry bulk freight rates at high levels. The supply side is also tight. According to Clarksons data, dry bulk fleet supply will increase by 4.4%/3.7% in 2027-2028. Considering factors such as declining efficiency or exit of older vessels and vessel speed reduction under high oil prices, effective capacity may tighten further. The industry-wide orderbook ratio is only 14.22%, far below the 75.59% level in 2008. Rising newbuilding prices and tight shipyard slots lengthening delivery cycles are suppressing shipowners' willingness to order new ships. Even if freight rates rise, the replenishment of effective capacity will be slow and lagged. Geopolitical conflicts provide the possibility of unexpected upside in demand, while tight shipyard slots provide a supply bottleneck. Guotai Haitong believes that the sustainability of the oil shipping boom is likely to exceed expectations. Over the past five years, shipping prosperity has risen in succession and successively triggered shipbuilding orders, driving sustained high shipbuilding prosperity. It is expected that this round of shipbuilding capacity constraints will be better than the previous round, and there is likely to be a wave of VLCC orders, continuing to ensure sustained shipbuilding prosperity. The secret in The Pacific Shipping's interim report The Pacific Shipping's own capacity strategy also reflects restraint with progressiveness. The company's orderbook includes 6 Handysize and 4 Ultramax vessels, expected to be delivered from 2028 to the first half of 2029, and it retains options for 2 methanol dual-fuel Ultramax vessels, highly consistent with the trend of tightening market supply. The high prosperity of oil shipping and dry bulk is essentially two sides of the same supply logic. More noteworthy is that against the backdrop of rising industry prosperity, The Pacific Shipping's 2026 interim results are not simply a matter of following the market, but demonstrate significant excess profitability. In the first half of this year, the company achieved revenue of $1.106 billion, up 8.5% year-on-year; net profit attributable to shareholders was $105 million, up 310% year-on-year. In terms of profit quality, the average daily revenue of the company's core Handysize and Supramax dry bulk vessels was $14,150 and $16,550, respectively, far exceeding the corresponding market indices of $1,950 and $2,370. Market freight rates themselves were also rising in the first half, but the extent to which the company outperformed the index did not narrow. This shows that the excess return was not brought by rising freight rates, but by operating capability itself. In its view, this benefits from the company's integrated operating platform, cargo portfolio management, and customer network, enabling it to consistently outperform the index over the long term in the highly fragmented dry bulk market with volatile freight rates. 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 $157.2 million and committed available liquidity of $673.6 million. The interim dividend was 15.5 Hong Kong cents per share, with a payout ratio of about 100% of net profit. In the capital-intensive, strongly cyclical shipping industry, such a dividend level is not common. CICC recently issued a research report. Considering that recent freight rates were better than the bank's expectations, it raised The Pacific Shipping's 2026/2027 earnings by 37.1%/42.7% to $241/257 million. The current share price corresponds to 11.4/10.7 times 2026/2027 price-to-earnings ratios. It maintained an outperform industry rating and raised the target price by 33.5% to HK$4.54 per share, implying more than 10% upside from the current share price. The Pacific Shipping's most direct near-term catalyst comes from earnings visibility brought by freight rate locking. According to the company's announcement, it has locked about 78% and 82% of Handysize and Supramax vessel schedules for the third quarter, corresponding to average daily TCE of $15,810/day and $18,680/day, respectively. Third-quarter profit is basically secured, and the locked prices are significantly higher than the average daily revenue achieved in the first half, while the spot portion may still realize higher elasticity. The fourth quarter is the traditional peak season for dry bulk, with iron ore, coal, and grain to be shipped intensively during the period. In addition, the continued ramp-up of Simandou will also provide medium-term support. CICC expects that Simandou iron ore output is likely to continue increasing next year and the year after, driving long-haul transportation demand. In addition, potential post-war reconstruction demand is also expected to bring incremental demand. Summary Taken together, the super bull market in oil shipping is not an isolated phenomenon. Tight shipyard slots, scarce effective capacity, and a reconstructed trade landscapethese underlying forces driving oil shipping prosperity are also reshaping the dry bulk market. The Pacific Shipping may not be the most elastic target in this cycle, but its index-beating operating capability, prudent capacity strategy, and generous shareholder returns make it a steady choice worth reassessing in the broader shipping cycle. When the market marvels at the million-dollar daily rate for VLCCs, the silent rise of dry bulk may also deserve attention.