Hormuz shifts from brief ceasefire to blockade, keeping tanker supply tight and freight rates elevated

Overview

This report tracks tanker shipping developments in the sixth week of the Hormuz disruption. On April 8, the U.S. and Iran reached a two-week ceasefire mediated by Pakistan, briefly allowing vessels to move, but negotiations failed on April 11, and on April 12 the U.S. announced that the Navy would immediately blockade Hormuz and intercept vessels paying Iran passage fees. The report argues this means the market is not moving toward normalization; instead, it has entered a stage with higher execution and policy risk. For tanker stocks, earnings continue to benefit from disruption, diversions, tighter effective supply and elevated freight rates, but share price volatility will also rise materially.

Core views

The core view is that 'the disruption itself is the trade, not normalization.' The report believes Red Sea participation has fallen to a cyclical low, and while Middle East flows rebounded briefly, the increase mainly came from rapid re-bookings of vessels pre-positioned in the Indian Ocean and Southeast Asia; it does not mean risk appetite has truly recovered. CSET's direct asset risk in Hormuz has declined as some vessels exited, but if vessels had paid passage fees, potential interception risk has increased. CSET's low idle rate and high utilization support earnings realization, while Sinokor continues to expand its participation in high-risk regions and is becoming an important marginal force affecting supply and price volatility.

Analysis framework

The report mainly uses AIS vessel destinations, VLCC positions, route participation counts, operator fleet deployment, waiting ratios, regional flows, and freight indices for weekly tracking, and compares vessel deployment changes on key dates such as April 7 and April 12 to distinguish a genuine demand recovery from temporary re-booking.

Methodology notes

• Shipping supply and demand trackingAIS vessel flow monitoring

  Use vessel destination and regional position to judge actual VLCC deployment and effective supply.

  The report uses AIS destinations and vessel positions to observe flows in the Red Sea, Middle East, Indian Ocean, Southeast Asia, southern Africa and other regions to determine whether the current flow rebound comes from a structural recovery or from opportunistic re-booking during the ceasefire window.

• Tanker profitability analysisTon-miles and effective supply

  Diversions, waiting and suboptimal deployment reduce effective vessel supply and expand ton-mile demand.

  CSET's southern Africa exposure rose to 15%, meaning more vessels are routing around the Cape of Good Hope, lengthening voyages and supporting freight rates and TCE; meanwhile, the industry's waiting ratio remains high, further tightening actually available capacity.

• Investment judgmentDisruption-driven earnings framework

  Under geopolitical disruption, earnings are jointly determined by freight rates, utilization, diversion efficiency and execution risk.

  The report does not treat the ceasefire as a negative normalization event; instead it emphasizes that blockade, interception and mine-clearing risks will keep routes fragmented and freight rates elevated, thereby supporting tanker company earnings.

Asset mapping & comparison

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

• COSCO Shipping Energy Transport - H (1138.HK)

  Core beneficiary

  Strengths

  Waiting ratio of about 15%, below most peers and the industry average; benefits from low idle rates, high utilization and flexible scheduling, while elevated freight rates support earnings realization.

  Weaknesses

  Middle East exposure remains below normal levels, and participation in Red Sea and Hormuz routes is constrained by safety, policy and execution risks.

  Comparison

  Compared with most peers' 20% to 42% waiting ratios and the industry's roughly 42% ratio, CSET's deployment efficiency is higher; compared with Sinokor, CSET is more disciplined and selective.

  Risks

  Hormuz blockade, potential interception, crew safety, disputes over passage fees, a retreat in freight rates from high levels, and share price volatility.

• COSCO Shipping Energy Transport - A (600026.SS)

  Exposure to the same operating entity in A-shares

  Strengths

  Also benefits from CSET's fleet utilization advantage and elevated VLCC freight rates; the report assigns an OW rating.

  Weaknesses

  A-share prices may be more affected by local market risk appetite and geopolitical news flow.

  Comparison

  Shares the same CSET operating exposure as the H-share, but trading market, currency and investor base differ.

  Risks

  Policy risk, route safety risk, freight rate volatility and a pullback in market sentiment.

• China Merchants Energy Shipping (CMES)

  Peer benchmark for Chinese tanker operators

  Strengths

  After the ceasefire, Red Sea participation rebounded to 4 vessels, showing an ability to re-enter opportunistically.

  Weaknesses

  The report notes that CMES has rising idling and relatively lower deployment efficiency.

  Comparison

  Compared with CSET, CMES is weaker in deployment efficiency and low-idle advantages; both are tactical rather than structural re-entries.

  Risks

  Participation in high-risk routes, rising waiting ratios, freight rate volatility and geopolitical policy changes.

• Sinokor

  A marginal supply and risk appetite barometer

  Strengths

  Continues to increase participation in high-risk areas, with 18 VLCCs inside Hormuz and fleet share rising to 25.0%.

  Weaknesses

  The high-risk participation strategy makes it more exposed to blockade, interception and security incidents.

  Comparison

  Compared with listed operators such as CSET and CMES, Sinokor is more aggressive and may become an important variable for marginal supply and price discovery.

  Risks

  Hormuz blockade, shadow-fleet-related risks, compliance and execution risks, and extreme freight rate pullbacks.

Key data

• VLCCs exited Hormuz during the ceasefire window3 vessels, about 0.4% of the global fleetIncluding 1 CSET vessel, reducing CSET's direct asset stranding risk.
• VLCCs still in Hormuz60 vessels, about 8% of the global fleetMost belong to Middle East Gulf oil companies; Sinokor has 18 vessels.
• Newly entered VLCCs into Hormuz2 vessels, about 0.3% of the global fleetIncluding shadow fleet and Sinokor vessels, indicating that high-risk participation remains limited and concentrated.
• VLCCs bound for the Red Sea20 vesselsBelow 48 on March 22, 40 on March 29, and 34 on April 5, a four-week low.
• Chinese operators' participation in the Red SeaCSET 3 vessels, CMES 4 vesselsRecovered from zero participation on April 5, but the report believes this was price-driven and opportunistic re-entry.
• CSET Middle East exposure35%Above 25% on April 5 but below 47% on March 22, indicating that normal conditions have not yet returned.
• CSET waiting ratioabout 15%Below the 20% to 42% of most peers and the industry's roughly 42%, reflecting a utilization advantage.
• Sinokor VLCC fleet share25.0%, up 0.3 percentage points week on weekShows continued expansion in a volatile market and a greater impact on marginal supply.
• TD15 freight rateabout US$124k/dayPulled back from above US$130k/day but remains elevated.
• TD22 freight rateabout US$112k/dayPulled back from above US$140k/day but remains strong.
• Middle East Gulf-related indicesTD2 about US$595k/day, Middle East to China about US$444k/dayHigh freight rates explain why some operators re-entered Middle East routes despite higher risks.

Impact & implications

The investment implication is that tanker stocks will continue to experience sharp short-term volatility driven by geopolitical news and operator behavior, but fundamentals have not returned to normal. Low Red Sea and Middle East flows, Cape of Good Hope diversions, high waiting ratios and Hormuz policy risk together limit effective supply and support VLCC freight rates and CSET earnings. CSET has a relative advantage thanks to its low idle rate, rapid exit and opportunistic re-entry capability; however, if the blockade and interceptions escalate, vessels that have paid passage fees or remain in high-risk areas may face new execution risks.

Risks

• The U.S. blockade of Hormuz and interception of vessels paying Iran passage fees could materially increase execution risk.
• If geopolitical conflict escalates or negotiations continue to fail, the 60 VLCCs in Hormuz and related operators face higher asset and personnel safety risks.
• If the ceasefire returns and brings real normalization, diversions and supply constraints may ease, and freight rates and tanker stock earnings expectations may retreat.
• More participation by aggressive operators such as Sinokor may release marginal supply and also amplify market volatility.
• VLCC freight rates have already fallen from their highs; if demand absorption weakens, the sustainability of high earnings could come under pressure.
• Although CSET has reduced some direct asset risk, vessels that exited after paying passage fees may still face potential interception or compliance uncertainty.

What to watch

• The enforcement intensity of the U.S. blockade of Hormuz, the scope of interceptions, and progress in mine clearing.
• Whether the 60 VLCCs inside Hormuz continue to remain there, exit, or see new entries.
• Whether the number of VLCCs bound for the Red Sea recovers from the low of 20, or continues to decline.
• Whether CSET and CMES move from opportunistic re-booking to sustained deployment.
• Whether CSET's waiting ratio stays at about 15%, and whether the industry's waiting ratio falls from roughly 42%.
• Whether freight indicators such as the Middle East Gulf route, TD15 and TD22 continue to run at elevated levels.
• Changes in Sinokor's share of the Hormuz area and the global VLCC fleet.
• Whether vessel positions in China, the Indian Ocean, Southeast Asia and southern Africa continue to show ongoing diversions.