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Reality check for shipping’s exceptional run as buyers bet on a short-lived windfall

Shipping markets are enjoying the strongest and longest earnings boom seen in more than two decades, yet asset buyers remain remarkably cautious about the industry's longer-term prospects. According to Danish Ship Finance’s November Shipping Market Review, the disconnect between soaring earnings and more restrained vessel valuations reflects a widespread belief that current market conditions are temporary rather than structural.

The report examines whether investors are right to assume that today's record profitability will fade. Its conclusion is that while much of the additional shipping demand generated by geopolitical disruption appears durable, but some of the most lucrative sectors, particularly crude tankers, remain highly exposed to a sudden reversal.

The current market strength is unprecedented in duration. Yet vessel buyers are not behaving as though the boom will endure.

The report argues that market participants are effectively pricing in a short-term earnings spike rather than a prolonged cycle. 

As the report notes, "buyers are paying for months of record earnings, not years”.

The evidence lies in tanker asset values. While tanker earnings have reached record territory, younger and older vessels have appreciated by roughly the same amount. A 15-year-old suezmax has gained about as much value as a newbuild equivalent, suggesting investors are focused on capturing immediate cash flow rather than long-term earning power. According to the report, "had buyers believed the record would last, the young ship, with two more decades of work ahead, would have gained far more”.

Longer journeys

A central theme of the analysis is that shipping demand has been reshaped less by cargo growth than by longer voyage distances. Since 2019, fleets across every major shipping segment have expanded faster than the underlying cargo volumes they transport. Under normal circumstances, such fleet growth would depress utilisation and freight rates. Instead, vessels remain employed because journeys are taking significantly longer.

The report explains that "ships have found work in longer journeys, not more cargo”. Longer round trips, increased ballast voyages, slower sailing speeds, sanctions-related trade shifts and rerouting around geopolitical flashpoints have all absorbed vessel capacity. For LPG carriers, an average round voyage that took 41 days in 2019 now requires 55 days, reducing annual cargo-carrying productivity by roughly a quarter.

Danish Ship Finance estimates that roughly one vessel in ten across the major shipping sectors is employed only because round trips have lengthened compared with 2019.

These "extra ships" account for all additional LPG carrier employment, most of the increase in bulk carrier demand and around two-thirds of LNG carrier utilisation growth.

The report identifies four distinct drivers behind this extra employment: the closure of the Strait of Hormuz, Red Sea disruptions, Russian sanctions and longer-lasting structural changes in trade patterns. Each carries a different timeline and risk profile.

The closure of the Strait of Hormuz has had the most immediate impact. Asian buyers have increasingly sourced crude oil and gas cargoes from Atlantic Basin suppliers rather than the Gulf, extending voyage distances considerably. This factor alone is keeping six out of ten extra crude tankers employed and nearly half of the additional LPG carrier capacity in use. Importantly, these ships could return to the market quickly if the waterway reopens.

By contrast, Russian sanctions have produced a much more durable shift. Russian energy exports now travel to more distant destinations, while Europe has replaced Russian supplies with imports from other regions. According to the report, this change is keeping six in ten additional product tankers, four in ten extra LNG carriers and three in ten extra crude tankers employed. The authors suggest these patterns would disappear only if sanctions themselves were lifted.

Underlying many markets are longer-term structural shifts that appear unlikely to reverse. Growing Asian demand for Atlantic Basin ore, bauxite and gas has permanently altered trade flows, while slower steaming remains widespread. These factors continue to support dry bulk and gas carrier employment.

Risk build-up

Despite these supportive factors, Danish Ship Finance warns that risk is accumulating in several sectors where four conditions overlap: record earnings, elevated vessel prices, demand support that could disappear quickly and significant fleet growth. Crude tankers are the segment most exposed to a correction.

"Crude Tankers are the most exposed; LPG Carriers are adding the most ships," the report says. If the Strait of Hormuz were to reopen, eight out of every hundred crude tankers could return to the market within weeks while earnings and vessel values remain at historically elevated levels.

Compounding the challenge is a substantial orderbook. Although headline industry figures imply that new vessel deliveries merely replace ageing tonnage, the reality varies significantly by segment and vessel class. The report argues that scrapping alone will not be sufficient to offset incoming supply in several key markets. For VLCCs, suezmaxes, capesizes and large gas carriers, the orderbook exceeds the entire fleet of vessels older than 20 years. Even if every eligible ship were scrapped, fleet growth would still happen.

The implications for asset values could be severe. 

Danish Ship Finance calculates that a weaker freight market combined with shorter operating lives could cut the value of older VLCCs dramatically.

A ten-year-old VLCC could lose up to 65% of its value under such a scenario, while a 15-year-old unit could lose more than 80%.

The report concludes that vessel buyers are largely justified in their cautious stance. Around 1,800 vessels across the five major segments are employed solely because round trips have become longer than they were before 2019. Nearly half of this support appears durable, particularly in dry bulk and sanction-driven trades. However, a substantial share depends on recent geopolitical developments that could change rapidly.

"Almost half of the extra work looks set to last," yet at the same time, "the top layer could go within weeks”, particularly for crude tankers. Freight rates would likely react even before vessels physically return to the market.