Hormuz Reopening Expectations Boost Tankers, Container Freight Rates Continue to Rise

Overview

This UBS Shipping Supply Chain Weekly (Week 24) tracks the latest trade flows across shipping, shipbuilding, and port operations using high-frequency data. Key findings indicate that geopolitical de-escalation—marked by a U.S.-Iran peace agreement and expectations of the Strait of Hormuz reopening—has been favorable for the tanker sector, while container shipping has benefited from recovering demand, leading to significant rate hikes on major routes. In contrast, the dry bulk market has softened temporarily, though it remains robust year-to-date. The report analyzes cyclical shifts in various shipping sub-markets through multi-dimensional volume and price metrics.

Core views

In the tanker market, easing geopolitical tensions is the primary focus. With the U.S.-Iran peace agreement and announcements regarding the Strait of Hormuz reopening, sentiment among tanker-related equities has improved. Although daily vessel traffic through the strait remained constrained in early June, market expectations suggest that VLCC (Very Large Crude Carrier) average earnings will recover as a result. Last week, VLCC average earnings from the Middle East/West Africa to China remained stable, and earnings from the U.S. Gulf Coast to China were also steady, averaging below $100,000 per day. Data shows that TCE rates on Middle East-to-China routes are 99% higher than pre-conflict levels, indicating substantial potential upside. The container market exhibits simultaneous gains in both volume and prices. Despite a slight 1% week-over-week decline in container throughput at China's major ports, year-over-year growth stands at 5%, underscoring resilient demand. Amid rising shipping demand, freight rates on key routes have further increased: the SCFI composite index rose 9% week-over-week and surged 43% year-over-year. Specifically, Shanghai-to-Europe rates jumped 18% week-over-week, while trans-Pacific rates climbed 10–12%. Los Angeles Port import volumes grew 7% year-over-year in Week 24, with an expected similar year-over-year growth rate of around 7% in Week 25. Additionally, the Asian intra-regional container vessel charter index rose 0.5% week-over-week. UBS maritime destination monitoring data reveals that since May, container shipments from Asia to the U.S. have shown strong year-over-year growth, accompanied by patterns of front-loading. On the dry bulk and shipbuilding fronts, the bulk market softened slightly last week. The BDI index declined 10% week-over-week, and Capesize bulk carrier earnings fell 18% week-over-week. However, over the longer term, the BDI has rebounded 61% year-to-date, suggesting overall market conditions remain relatively strong. In shipbuilding, the newbuild price index held steady last week, yet driven by robust VLCC demand, global shipbuilding activity remains vigorous year-to-date, with both Clarksons and CNPI indices indicating persistently high or rising newbuild prices.

Analysis framework

The report employs a typical high-frequency data tracking and supply-demand framework analysis methodology. First, leveraging proprietary UBS Evidence Lab data—including AIS vessel positioning and bill-of-lading information—combined with third-party sources such as the Ministry of Transport, the report monitors real-time changes in global choke points like the Strait of Hormuz and the Red Sea, assessing constraints on supply. Second, by disaggregating freight rate indices (SCFI, BDI, TCE) and port throughput data across different vessel types (tankers, containers, bulk carriers), the report quantifies marginal shifts in demand. Finally, geopolitical events—such as peace agreements—are treated as exogenous variables to analyze their impact on supply-side expectations for specific routes (e.g., those related to the Strait of Hormuz), thereby inferring potential effects on freight rates and shipowner earnings. This 'event-driven plus high-frequency data validation' approach enables the firm to swiftly capture the underlying logic behind short-term market fluctuations.

Methodology notes

• Industry/sector analysis frameworkSupply-demand framework

  The core tension in the shipping industry lies in matching transport capacity with trade demand, particularly where key chokepoints—such as the Strait of Hormuz, Suez, or the Red Sea—directly affect effective supply.

  By monitoring traffic volumes through the Strait of Hormuz, the report assesses how geopolitical de-escalation releases previously suppressed transport capacity, influencing equilibrium VLCC freight rates. This exemplifies the classic logic of analyzing industry conditions via supply-side disruptions.

• Industry/sector analysis frameworkVolume-Rate Decomposition

  Breaking down a shipping company's revenue drivers into 'volume' and 'rate/freight rate,' observing trends separately.

  The report tracks port throughput (representing volume) alongside SCFI/BDI indices (representing rates), noting that the container market displays 'stable volume, rising rates,' whereas the bulk market shows 'both volume and rates weak in the short term but trending upward long-term,' helping investors identify differing dynamics across segments.

• Event博弈 and behavioral financeExpectation Gap/Expectation Management

  Asset prices often reflect market expectations about the future rather than current realities. When actual events—such as a peace agreement—contradict prior pessimistic forecasts, valuation corrections can occur.

  The report highlights that tanker stocks reacted positively to the U.S.-Iran peace agreement because earlier fears of supply disruptions due to the Strait of Hormuz closure had priced in a risk premium, which was subsequently unwound by the expectation of reopening, boosting both stock prices and freight rate expectations.

Key data

• SCFI Composite Index Week-over-Week+9%Last week's data showing accelerating container freight rate increases
• SCFI Composite Index Year-over-Year+43%Compared to the same period last year, with a low base this year and strong demand
• Shanghai-to-Europe Freight Rate Week-over-Week+18%One of the most significant increases among major routes
• Trans-Pacific Freight Rate Week-over-Week+10–12%Driven by growing U.S. import demand
• BDI Index Week-over-Week-10%Short-term pullback in the bulk cargo market
• Capesize Bulk Carrier Earnings Week-over-Week-18%Following the BDI downward trend
• BDI Index Year-to-Date Increase+61%Long-term upward trend still intact
• China's Major Ports Container Throughput Year-over-Year+5%Last week's data showing steady export demand
• VLCC Average Earnings (Middle East/West Africa–China)<$100,000/dayStable last week, below historical peaks but expected to recover

Impact & implications

The report concludes that expectations of the Strait of Hormuz reopening will help alleviate supply-side pressures in the tanker market, potentially triggering a temporary recovery in VLCC earnings and providing short-term support to tanker stocks. For the container segment, sustained freight rate increases and year-over-year throughput growth indicate robust global trade demand—particularly strong import demand from Europe and the U.S.—which should underpin container shipowners' profit expectations. However, investors should remain mindful of short-term volatility in the bulk cargo market; despite its impressive year-to-date gains, recent pullbacks suggest attention should be paid to macroeconomic shifts affecting commodity demand. Overall, the shipping sector presents structural opportunities, with tankers and containers outperforming bulk carriers in the near term.

Risks

• A contraction in Chinese macroeconomic investment could lead to reduced industrial demand or lower import/export volumes.
• Continued weakness in the Chinese economy may slow growth in shipping demand.
• The elimination of preferential tax policies for high-tech enterprises could negatively impact relevant companies' profitability and logistics needs.
• Intense competition between domestic and international firms may result in loss of market share.

What to watch

• The pace of actual navigation resumption through the Strait of Hormuz.
• The sustainability of SCFI and major route freight rates, especially on European and trans-Pacific routes.
• The trajectory of the BDI index to determine whether the bulk cargo market's recent pullback represents a short-term fluctuation or a broader trend reversal.
• Whether container freight volumes on Asia-to-U.S. routes continue to follow the 'front-loading' pattern.