Shipping investors fear geopolitical rate upside could unwind in 2026

Container liner stocks dipped last month in the wake of positive signals on a potential return to the Red Sea route.

Product tanker stocks, which are exposed to downside from both Russia-Ukraine peace and a Red Sea reopening, have been on a downward slide since the second week of November.

Shares of Scorpio Tankers are down 13% since November 10, with Torm down 10% and Hafnia down 7%.

The tone of market commentary from shipping executives and analysts has evolved. Before, it was about how ongoing disruptions are adding to rate upside from strong fundamentals. Now, it is about how fundamentals should support rates even if disruptions ease.

There is also more emphasis on how the easing of disruptions is far from certain, how some segments are shielded from downside, and how the negative rate effects from increased efficiencies will be partially offset.

Russia-Ukraine war

Tanker spot rates remain “very strong”, with crude and product rates near 2025 highs, “yet tanker equities have been under some pressure”, wrote Jefferies analyst Omar Nokta on Tuesday.

That pressure is coming from investors weighing “the impact of a potential Russia-Ukraine peace agreement, a pause in Opec+ production, and a potential return to normal Red Sea transits”, said Nokta.

“The key factor is whether Russian exports continue moving to Asia or return to Europe. A return to pre-war trade flows seems unlikely, but the uncertainty, for now, seems to be affecting sentiment.”

Clarksons Securities analyst Frode Mørkedal said on Monday, “Despite headlines about possible Russia-Ukraine peace talks and last week’s pressure on tanker equities, we do not see normalisation in trade flows or a lifting of sanctions as a near-term event.”

Tanker market disruptions from the Russia-Ukraine war have not decreased, they have increased, with Ukraine’s attacks on tankers and loading facilities and Russia’s threat on Tuesday of retaliation.

According to Vortexa data, crude loadings from Novorossiysk fell by almost 50% week on week in the final week of November.

Meanwhile, Vortexa’s data on floating non-sanctioned crude storage — tankers that have not moved for more than seven days — is rising. Mainstream crude tanker demand is being buoyed by unloading delays for sanctioned tankers.

“Until recently, levels have been very low, but over the last couple of weeks, there has been a substantial buildup,” said Vortexa chief economist David Wech in an online presentation on Tuesday. Mainstream crude tanker floating storage is now at a 16-month high, according to Vortexa.

The number of mainstream VLCCs in ballast has also fallen to 20% below normal, said Wech. “Higher exports are meeting fewer [ballast] vessels, and the logical result is that freight rates have gone up.

“I personally believe we’re not yet at the end of the curve and there is more to come down the line,” said Wech.

Red Sea transits

There was positive commentary on a possible reopening of the Red Sea route last month, during the Zim quarterly call on November 20 and in statements from the Suez Canal Authority and Maersk on November 25. That had negative implications for liner freight rates.

“At some point, this is going to end,” said Evangelos Chatzis, chief financial officer of Danaos Corporation, during a Capital Link online panel on Tuesday, referring to Red Sea reroutings.

“By ‘at some point’, I’m not referring to the distant future. I believe that in 2026, the Suez will normalise,” said Chatzis.

Containership lessor executives speaking on the Capital Link panel said that this would reinject 10%-12% of global capacity into the fleet, although there will be offsets.

Containerships will slow down, said Chatzis. “We’ve seen vessels that go around [the Cape of Good Hope] speed up to meet schedules, so there is a mitigant to the effective supply, which is slowing down.”

Thomas Lister, chief executive of Global Ship Lease, said that higher effective supply “is going to be disproportionately influential on the bigger ships”, with very limited effects on smaller and midsize boxships.

Port congestion in Europe would be another mitigating factor.

According to Moritz Fuhurmann, co-chief executive and chief financial officer of MPC Container Ships, “Our expectation is that it’s going to be a gradual process. They will need sufficient planning to avoid congestion in European ports, where we already have congestion.”

Overall, the negatives of a Red Sea reopening will affect liners far sooner than boxship lessors. The lessors have charter coverage for the next two years; they’re protected.

In the product tanker market, Hafnia vice president of commercial Soren Winther maintained during a quarterly call on Monday that the impact of a Red Sea reopening “may be less than initially anticipated”.

Hafnia estimated that a reopening would lead to a demand loss of just six medium-range tanker equivalents. The loss of 230 MR equivalents due to the end of Cape of Good Hope reroutings would be offset by the addition of 181 MR equivalents through the Suez and the addition of 43 MR equivalents from cross-hemisphere voyages.

According to Winther, “The Middle East will be a more competitive supplier into Northwest Europe and the Mediterranean again, so there would be added volume coming back to the normal east-to-west volumes.

“If you have more supply out of the Middle East, that’s probably positive for the LR1s and LR2s, and there will also be other trade flows out of the US Gulf for the MRs, with more turning toward South America.”

US-China trade tensions

US tariffs have been yet another major disruptor of trade flows in 2025.

The inefficiency upside for rates has already decreased due to the US-China trade agreement announced in late October, which has yet to be formalised. That agreement led to a one-year pause in port fees beginning on November 10.

Port fees had a positive effect on spot rates for very large gas carriers, both in the runup to US port fees in September and early October, and with the abrupt implementation of Chinese port fees in mid-October.

“Following the de-escalation of trade tension between the US and China, it’s reasonable to expect some unwinding of the inefficiencies in the global fleet as trading restrictions on US- and China-linked vessels are now lifted,” said Kristian Sorensen, chief executive of VLGC owner BW LPG, during a quarterly call on Tuesday.

The countervailing positive for rates, he said, are that “the fundamentals for the LPG shipping market remain supportive”, and that the US-China VLGC trade remains constrained.

“There is definitely an increase in activity [between China and the US after the truce],” said Sorensen. “But it’s not back to the same level as last year. There is still a 10% tariff on the Chinese side on US LPG. The trade is still more hesitant than it was last year.”

When it comes to US-China trade relations, the largest effect of changes to come will be on the container shipping front.

The current consensus is that the US Supreme Court will rule that Trump’s use of the International Emergency Economic Powers Act of 1977 (IEEPA) was illegal. The hearing was held on November 5. A decision could come shortly, or it could come months from now.

More companies are preemptively filing suit against the Trump administration in the US Court of International Trade to facilitate IEEPA refunds. The highest-profile case to date was filed on Friday by US import giant Costco.

If the Supreme Court rules against Trump, it could be a short-term positive for liner demand, given the importer sentiment boost from refunds.

The Trump administration can use other tariff powers to partially recreate IEEPA tariffs, but it would have much less flexibility. Trump could immediately implement 15% blanket tariffs for 150 days under Section 122 of the Trade Act of 1974, and could rebuild the rest of China tariffs through Section 232 of the Trade Expansion Act of 1962.

Given the likelihood that Chinese tariffs will remain in place regardless of the Supreme Court decision, the positive shipping effect of Chinese diversification of containerised exports to non-US buyers, such as those in South America, would likely continue.

According to Lister, “The dynamic between China and the US has added an extra level of volatility and unpredictability to what has always been a volatile industry, and I think liner operators see having capacity as having optionality. It allows them to react to the changing dynamics of the industry, which is why they continue to have appetite for ships in the charter market.”