Shipping Hedge Fund Says Industry Set for Another Boom Year
A shipping hedge fund founded by a one-time ally of oil tanker billionaire John Fredriksen says the industry is set for another boom year because of the reopening of China’s economy and a lack of fleet expansion.
Tor Svelland, founder of Svelland Capital Ltd., a hedge fund that focuses on commodities and freight markets, says the ingredients are there for a strong year for the ships that keep the global economy running — possibly even a record one.
“We are under invested in shipping, so the majority of the market is struggling on the supply side,” he said. As such, the merchant fleet’s transportation capacity “isn’t meeting demand.”
Investors are watching closely for signs of how China’s departure from its Covid zero policy will translate into real economic activity.
The vessels bringing in iron ore and coal to power industrial production, and oil for cars and trucks, offer insights into the pace of recovery. Likewise, container ships haul billions of dollars of manufactured goods from factories in China to consumers globally.
The ClarkSea index, a measure of average day rates across all vessel classes, averaged $37,253 per day last year, a 30% hike year-on-year and the highest since at least 1990, according to data from Clarkson Research Services Ltd., part of the world’s biggest shipbroker.
Numerous parts of the shipping industry are struggling with the supply of vessels, Svelland said.
The strong freight market last year wasn’t universal. Rates for containers have fallen 80% from their mid-2021 peak during the pandemic when supply chains were snarled.
And that sector’s outlook isn’t so bright, as a slew of new ships entering the market help to stave off what has been a period of red-hot demand, he said.
Svelland spent a year as the chief executive officer of Seatankers Group, a Fredriksen holding company, and had senior roles at two of his firms. During that time he took a break from his hedge fund, which first formed in 2016. He also had stints at Trafigura Group and Goldman Sachs Group Inc. Svelland Capital manages about $215 million in assets.
Svelland said he’s particularly bullish on the outlook for carriers that ferry commodities from grain to iron, even though rates are way down since the start of the year.
Oil and fuel tankers are also likely to have to travel further this year after the European Union banned almost all seaborne purchases from Russia, forcing the country to send cargoes thousands of miles further to Asia. Likewise, Europe will have to import some of its supplies from countries further away.
“We will most likely see flows lengthen from both sides,” he said. The longer journeys mean a reduction in the availability of ships, unless more ships become available to the fleet.
Even after a record year, Svelland said he’s bullish that freight rates will climb even higher on average across vessel classes, driven mainly by oil tankers, dry cargo and LNG. Freight rates should see some upside this year as long as there’s no deep global recession, he said.
–With assistance from Alex Longley.
© 2023 Bloomberg L.P.