Goldman Sachs: Hormuz Reopening Benefits Tankers and Airlines; Container Shipping Under Pressure

Overview

Goldman Sachs released a scenario analysis report on the Asian transportation sector, assessing the impact of the reopening of the Strait of Hormuz and the potential lifting of Iranian oil sanctions on various sub-sectors of Chinese transportation. The report believes that geopolitical easing will lead to divergence within the sector: tankers, airlines, and shipbuilders will be the biggest beneficiaries, while the container shipping sector, which previously benefited from rerouting premiums, faces significant downside risks.

Core views

Tanker Sector (Biggest Beneficiary): The closure of the Strait of Hormuz led to temporary overcapacity in crude and product tanker transport, with freight rates falling from pre-war levels of $200,000/day to $90,000-$100,000/day. If the strait reopens, on one hand, the 705 million barrel decline in global crude inventories since February will generate approximately 4.8% restocking demand (assuming export normalization by end-July); on the other hand, if Iran sanctions are lifted, about 5% of shipping demand will shift from the shadow fleet to the compliant fleet. Due to recent industry M&A (e.g., SinoKor), the market share of the top ten compliant players has risen to 68%, significantly boosting VLCC freight rate elasticity, where every 1 percentage point change in net demand can drive a $20,000/day increase in freight rates. Goldman Sachs predicts that in the optimistic scenario, first-year VLCC TCE could reach $350,000/day. The preferred pick, COSCO Shipping Energy (600026.SS/1138.HK), has implied H-share upside potential of 77%, 113%, and 189% under base, moderate, and optimistic scenarios, respectively. Airlines and Air Cargo: The commodities team assumes that Gulf exports normalize earlier by end-July, leading to a $10/barrel drop in oil prices compared to the base case. This not only directly reduces fuel costs but also stimulates demand through lower fuel surcharges. Earnings sensitivity analysis shows that the increase in peak 2028 net profit compared to the base case would be: China Southern Airlines +26%, China Eastern Airlines +18%, Air China +16%, Spring Airlines +4%, and Eastern Air Logistics +4%. If this scenario materializes, the H-shares of the three major carriers have 60%-70% upside potential. Shipbuilding Sector: Although the reopening of the strait has limited short-term impact on shipyard earnings, sustained high freight rates and improved trade visibility will effectively incentivize shipowners to place new ship orders, thereby reversing the slowdown in orders seen since May. The report prefers Songfa Shares (603268.SS) due to the rapid expansion of its core asset, Hengli Heavy Industry, and strong order momentum. Container Shipping (Facing Downside Risks): The reopening of the Strait of Hormuz may alleviate congestion at alternative ports and reduce sailing speeds. More critically, if major liner companies like Maersk and CMA CGM resume Red Sea routes, full diversion back to the Suez Canal would reduce container TEU-mile demand by approximately 10%, releasing effective capacity. In this scenario, although COSCO SHIPPING Holdings can still achieve RMB 6 billion in net profit (including port and investment income) thanks to a $30/unit cost advantage, its core container shipping business would face losses, leading to a 48% and 3% decline in net profit and Book Value Per Share (BVPS) respectively compared to the base case, implying 20%/32% downside for A/H shares.

Analysis framework

The report primarily employs Scenario Analysis, combining macro forecasts from Goldman Sachs' commodities team to deduce the impact of different geopolitical outcomes on transportation supply and demand. On the demand side, it quantifies restocking demand by calculating the crude inventory gap and assesses the reshaping effect of sanction lifting on the allocation of capacity between shadow and compliant fleets. In terms of pricing mechanisms, it introduces a price elasticity model, combined with increased concentration from industry consolidation, to argue for enhanced control over freight rates by leading enterprises. For valuation, it adopts differentiated multiples for assets at different stages of the cycle: P/B combined with target ROE for tankers and shipbuilding benefiting from the upcycle; and a P/B discount below historical mean minus one standard deviation for container shipping facing a downcycle.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Inventory Cycle and Quantification of Restocking Demand

  The report calculates the absolute decline in global crude inventories during the closure of the Strait of Hormuz (705 million barrels) and converts it into restocking demand representing a fixed proportion of global seaborne crude trade (4.8%), thereby precisely quantifying the substantive boost to shipping demand from geopolitical events.

• Industry/Sector Analysis Framework

  Demand Shift from Shadow Fleet to Compliant Fleet

  Under sanctions, sanctioned crude relies on unregulated 'shadow fleet' transport. The report notes that if sanctions are lifted, this crude will flow back into the regular insurance and compliant fleet system, substantially increasing capacity utilization in the compliant market without increasing total demand.

• Industry/Sector Analysis Framework

  Industry Concentration and Amplified Price Elasticity

  The report finds that as M&A progresses within the industry (e.g., SinoKor's expansion), the market share of the top ten players in the VLCC market has risen from 47% to 68%. This strengthening oligopoly structure significantly increases the sensitivity of freight rates to marginal changes in supply and demand, meaning unit demand growth can leverage much higher freight rate increases than before.

• Valuation MethodPB valuation

  Cycle-Adjusted PB Valuation

  For heavy-asset shipping stocks with highly volatile earnings, the report abandons simple P/E ratios in favor of P/B valuation. During upcycles (e.g., tankers), it assigns a P/B premium based on high ROE expectations; during expected downcycles (e.g., container shipping), it actively lowers the target P/B to below the historical average (e.g., 0.6x-0.8x) to reflect cyclical downturn risks.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• COSCO Shipping Energy (600026.SS / 1138.HK)

  Direct beneficiary of Hormuz reopening and surge in restocking demand; expansion of compliant capacity pool.

  Strengths

  Large scale of compliant fleet, directly benefiting from demand shift from shadow fleet and extremely high freight rate elasticity.

  Weaknesses

  Capacity expansion by Chinese shipyards after 2028 may bring supply pressure (hence the report applies a 25% discount to its target P/E).

  Comparison

  The stock with the greatest fundamental elasticity in the tanker sector.

  Risks

  Unexpected OPEC production cuts; weak macroeconomic environment leading to decreased oil consumption demand; new ship deliveries exceeding expectations.

• COSCO SHIPPING Holdings (601919.SS / 1919.HK)

  Loser under expectations of Red Sea resumption and low oil price environment, facing pressure from surge in effective capacity.

  Strengths

  Possesses significant cost advantages, with per-unit costs $30 lower than peers, allowing overall profitability even when peers break even.

  Weaknesses

  Core container shipping business faces risk of losses; net profit and BVPS expectations will be significantly revised downward.

  Comparison

  Has stronger resilience and cost moat compared to peers, but still difficult to reverse the industry's downward trend.

  Risks

  Red Sea resumption progressing faster than expected; cargo volumes missing expectations; accelerated decline in freight rates.

• China Southern Airlines (600029.SS / 1055.HK) / China Eastern Airlines / Air China

  Dual beneficiaries of falling oil prices and reduced fuel surcharges.

  Strengths

  Earnings are highly sensitive to oil prices; every $1/barrel drop brings significant profit thickening, with China Southern having the highest elasticity.

  Weaknesses

  The aviation industry as a whole still faces macro uncertainties and issues regarding subsidy sustainability.

  Comparison

  Profit elasticity of the three major carriers is superior to low-cost carriers (Spring) and air cargo (Eastern Air Logistics).

  Risks

  Weak performance in air ticket prices; decline in air cargo yields; delays in aircraft deliveries.

• Songfa Shares (603268.SS)

  Beneficiary of new shipbuilding orders driven by high tanker freight rates and increased trade activity.

  Strengths

  Core asset Hengli Heavy Industry is in a phase of rapid expansion, with strong momentum in order acquisition during the industry upcycle.

  Comparison

  Preferred pick in the shipbuilding sector, with expansion momentum superior to peers.

  Risks

  Steel prices rising beyond expectations; new order acquisition missing expectations; delays in capacity release.

Key data

• Global Crude Inventory Decline705 million barrelsDecline from February 2026 levels; if exports normalize by end-July, it will generate 4.8% restocking demand.
• VLCC TCE Price Elasticity$20,000/dayFreight rate increase corresponding to every 1 percentage point change in net demand, a significant rise from the $6,000 level in 2021-25.
• Shadow Fleet Demand ShiftApprox. 5 percentage pointsIf Iran sanctions are lifted, approximately 5ppts of shipping demand is expected to shift from the shadow fleet to the compliant fleet.
• Oil Price Drop Assumption$10/barrelBased on base case adjustment assuming Gulf exports normalize earlier by end-July.
• Container TEU-mile Demand DeclineApprox. 10%If liner companies fully restore Red Sea/Suez routes, the disappearance of rerouting premiums will lead to a reduction in demand mileage.

Impact & implications

Substantive geopolitical easing will serve as a catalyst for the revaluation of the transportation sector. Energy transport and air passenger travel will experience a dual boost in earnings expectations and valuations; conversely, container shipping, which previously relied on rerouting premiums from geopolitical conflicts to maintain high profits, will face severe tests of overcapacity once routes normalize combined with speed increases driven by low oil prices. Investors need to adjust allocation weights across different sub-sectors according to event progress.

Risks

• Breakdown in geopolitical negotiations, with progress on Hormuz reopening and sanction lifting falling short of expectations
• Unexpected OPEC production cuts offsetting restocking demand
• New ship deliveries exceeding expectations leading to overcapacity
• Weak macroeconomic environment leading to decreased oil consumption or air passenger demand
• Steel prices rising beyond expectations eroding shipyard profits
• Tightening trade regulatory policies targeting Chinese-built ships

What to watch

• Timeline for signing final US-Iran agreement and substantive progress on sanction lifting
• Pace of crude export recovery in the Gulf region and weekly changes in global crude inventories
• Short-term fluctuations in VLCC spot freight rates (TCE) and movements in shadow fleet capacity
• Latest operational decisions by major liner companies like Maersk and CMA CGM regarding the resumption of Red Sea routes