The global shipping market in September 2026 is experiencing a rare resonance: VLCC daily rates briefly broke through the $1 million mark, setting a historic high, while 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 now stuck at the same bottleneck: global shipyard slots are fully occupied by orders, new vessels cannot be delivered anytime soon, and the number of usable ships is increasingly insufficient.
Pacific Basin (02343) operates in the "silent" dry bulk business. It lacks the get-rich-quick narrative of oil shipping, but its operational capability has long outperformed market indices, and its dividend payouts are generous enough. Within 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 bounds. Shipping intelligence agency Windward monitoring shows that this month, VLCCs loading from the Persian Gulf and transiting the Strait of Hormuz saw daily rates briefly touch the $1 million threshold. Converted on a per-voyage basis, freight costs equate to approximately $26 per barrel of crude, accounting for nearly a quarter of the current oil price of about $100 per barrel—far exceeding the normal situation where freight represents only a tiny fraction of cargo value.
Clarksons Research data shows that the average daily earnings of global VLCCs rose to approximately $651,000, nearly doubling in a week. Routes from 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 to a global shortage of available vessels.
It is understood that the deterioration of this shortage is directly related to the attack on Saudi Arabia's East-West oil pipeline. After Houthi attacks damaged pumping stations, crude loading at Yanbu was briefly interrupted, forcing Saudi Arabia to ship more crude from the Persian Gulf's Ras Tanura port, transit the Strait of Hormuz, and conduct ship-to-ship transfers near Sohar, Oman. Industry insiders say Saudi Arabia has arranged approximately 60 million barrels of crude for September and October using this model, averaging about 1 million to 1.5 million barrels per day. This arrangement alleviates the crude export problem, but the cost is that already tight tanker capacity is further occupied.
Currently, about 15% of the world's approximately 900 VLCCs are concentrated in waters near Oman, and local capacity to expand ship-to-ship transfer support is already limited. Meanwhile, Red Sea risks have forced Saudi-flagged vessels to reduce passage through the Bab el-Mandeb Strait, with some ships needing to detour, adding about two weeks to voyages and further reducing effective capacity.
The impact of tanker tightness has already transmitted to terminal energy costs. It should be noted that what refineries truly care about is not the crude oil quote on screen, but the landed cost after crude is delivered—which includes not only the crude price itself but also transportation, insurance, financing, and war risk premiums. This means that falling oil prices do not necessarily equal lower refinery costs: if crude drops from $108 to $103, but per-barrel transportation costs increase by $10 or even $20 during 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 prices. The end result is that crude futures prices have already retreated, yet terminal fuel prices remain stubbornly high.
Against this backdrop, Guotai Haitong pointed out that oil shipping had already entered a super bull market before the Middle East conflict. During the conflict, war risk premiums, regional disruptions, and efficiency losses drove freight rates to new highs. In the medium term, strait recovery can be expected, oil shipping supply and demand will return to high levels, and restocking along with Changjin's market control will further add to the momentum. High profitability is expected to be maintained over the next two years.
How Shipyard Tightness Reshapes Dry Bulk
The underlying reason for this tension is that shipyard slots are fully occupied by orders across various vessel types, and new capacity cannot be replenished in time. The same supply constraint also applies to the dry bulk market. The Baltic Dry Index has risen about 85% year-to-date. The Simandou iron ore project has entered its production ramp-up phase, with expected annual export volumes of up to 120 million tonnes. The long voyage distance from Guinea to China will significantly lengthen tonne-mile demand. After equivalent replacement of Australian ore sources, this corresponds to a net increase of approximately 116 Capesize vessel capacity requirements, raising global iron ore trade tonne-mile demand by about 9.3%.
Additionally, a super El Niño phenomenon boosts coal-fired power generation demand on one hand, while potentially restricting Panama Canal transit on the other, exacerbating vessel deadweight reduction and detours. CICC noted that factors such as US soybean exports in the fourth quarter, winter coal restocking, and long-haul iron ore shipments are all expected to keep dry bulk freight rates elevated.
The supply side is similarly tight. According to Clarksons data, dry bulk fleet supply is projected to increase by 4.4%/3.7% in 2027-2028. Considering factors such as declining efficiency or retirement 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 extended delivery periods caused by shipyard tightness are suppressing shipowners' willingness to order. Even if freight rates rise, effective capacity replenishment will be slow and lagging.
Geopolitical conflicts provide the possibility of unexpected demand upside, while shipyard tightness provides a supply bottleneck. Guotai Haitong believes the sustainability of the oil shipping boom may exceed expectations. Over the past five years, shipping prosperity has advanced in relay and sequentially 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 a VLCC ordering wave is expected, continuing to ensure sustained shipbuilding prosperity.
The Code Behind Pacific Basin's Interim Results
Pacific Basin's own capacity strategy also reflects restrained progressiveness. The company's orderbook includes 6 Handysize and 4 Ultramax vessels, expected to be delivered between 2028 and the first half of 2029, with options retained for 2 methanol dual-fuel Ultramax vessels, highly aligned 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 notably, against the backdrop of rising industry prosperity, Pacific Basin's 2026 interim results are not simply market-following, 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, a year-on-year increase of 310%.
In terms of earnings quality, the company's core business—Handysize and Supramax dry bulk vessels—achieved average daily earnings of $14,150 and $16,550 respectively, far exceeding the corresponding market indices of $1,950 and $2,370. Market freight rates themselves were rising in the first half, but the company's margin of outperformance did not narrow. This indicates that excess returns are not brought by freight rate increases, but by operational capability itself.
In our view, this benefits from the company's integrated operating platform, cargo portfolio management, and customer network, enabling it to consistently outperform indices over the long term in the highly fragmented dry bulk market with volatile freight rates. Meanwhile, the company's financial structure is equally solid. As of end-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 HK cents per share, with a payout ratio of approximately 100% of net profit. In the capital-intensive, strongly cyclical shipping industry, such dividend generosity is uncommon.
CICC recently issued a research report, and considering that recent freight rates were better than the bank's expectations, it raised Pacific Basin'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 P/E ratios. It maintained an outperform industry rating, raising the target price by 33.5% to HK$4.54 per share, implying over 10% upside from the current share price.
Pacific Basin's most direct near-term catalyst comes from earnings visibility brought by freight rate locking. According to company announcements, approximately 78% and 82% of Handysize and Supramax vessel days have been locked in for the third quarter, corresponding to average daily TCE of $15,810/day and $18,680/day respectively. Third-quarter earnings are largely secured, and the locked prices are significantly higher than the average daily earnings achieved in the first half. The spot portion may also realize higher elasticity.
The fourth quarter is the traditional peak season for dry bulk, with iron ore, coal, and grain all shipping intensively during the period. Additionally, Simandou's continued ramp-up will provide medium-term support. CICC expects Simandou iron ore production to continue increasing in the coming years, driving long-haul transportation demand, and potential post-war reconstruction demand may also bring incremental volume.
Summary
In summary, the oil shipping super bull market is not an isolated phenomenon. Shipyard tightness, scarce effective capacity, and restructuring of trade patterns—these underlying forces driving oil shipping prosperity—are also reshaping the dry bulk market. Pacific Basin may not be the most elastic target in this cycle, but its index-beating operational capability, prudent capacity strategy, and generous shareholder returns make it a solid choice worth re-examining in the broader shipping cycle. While the market marvels at VLCCs' million-dollar daily rates, the silent rise of dry bulk may equally deserve attention.