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Shipping expert J Mintzmyer returns to update investors on his top stocks for 2025. Why invest in shipping? (1:45) Top tanker pick is International Seaways (15:15). Star Bulk Carriers, top dry bulk stock (25:40). Hedging geopolitical risks (34:00). Why ZIM is currently more of a trade than an investment (37:05). This is an excerpt from Seeking Alpha’s recent live event, Top Stocks 2025.
Learn more about J’s service, Value Investor’s Edge
Transcript
Julie Morgan: Hello and thanks for joining us today. I’m Julie Morgan. And I’m joined by a very special guest, J Mintzmyer from Value Investor’s Edge on Seeking Alpha.
Today’s topic is shipping. J will explore the impact of rising geopolitical tensions, potential new tariffs and sanctions, and ongoing global conflicts on the sector in the new year. And of course, always a highlight, he’ll share his top shipping picks for 2025.
J, I’m turning it over to you.
J Mintzmyer: All right, Julie. Thank you very much for the introduction and good afternoon to everyone who joined us for today’s top picks of 2025 webinar. Now there’s been a couple of great sessions earlier today and I appreciate everyone tuning in to learn a little bit more about the shipping industry and how we’re positioning ourselves for 2025.
So for introductions, I’m the Founder and President of Value Investor’s Edge, a boutique research service that’s focused exclusively on the maritime shipping industry. I’ve personally spent the past 15 years in this segment, and Value Investor’s Edge will turn 10 this May. So very excited about that.
You can follow me for free on Twitter, or X as it’s now called, @mintzmyer. If you’re interested in our exclusive research and model portfolios, you can go to Value Investor’s Edge. And that’ll take you right to our landing page here on Seeking Alpha. If you’re interested in the entry-level newsletter, which contains a few basic picks and macro outlooks, you can go to vie-lite.com.
So, first of all, a lot of people say, why do you invest in shipping? Why not just invest in the broad market? What drew you to this sector?
Well, when you’re trying to pick individual stocks or get a hold of trends, you want to be in a segment where you’re not competing against Goldman Sachs or Morgan Stanley or any of those big bank analysts. So being in sort of a niche sector, a sort of forgotten sector in some ways gives us a huge advantage.
Now, these aren’t like penny stocks. Most of these market caps range from about 300 million up to about 5 billion. So again, they’re not penny stocks, but they’re too small for most of the major institutions to invest in. So that gives us an edge there.
A lot of the publicly available research is often very limited, very wave top. If you look at stuff on Zacks or Motley Fool or even Seeking Alpha, you look at some of the public content, some of it’s very wave top. It’s not an expert driven research product. So again, having 15 years of experience in the sector gives us an additional edge here.
It’s cyclical, a cyclical sector, up and down. And so timing really matters in this segment. You have to know what’s going on in the broad macro space. You have to understand the supply dynamics and potential demand catalyst.
News trends, if you’re reading something on Bloomberg, or CNN, or one of the major headlines, it’s usually 3 to 6 months behind the curve. To give you an example, last fall with the port strikes, that was something we were talking about as early as March or April, and of course it didn’t hit the mainstream media until September, October.
You can go back even further and look at all sorts of different catalysts in shipping and it’s usually, if it’s on CNN or something like that, it’s usually something that we’re 3 or 6 months ahead of, just because that’s how the sector tends to work.
In my opinion, I’m a little biased, but I think it’s a very interesting sector. You’ll see the nexus of current events and geopolitics come together. One recent example was the Russian invasion of Ukraine in 2022, obviously a massive geopolitical event for everyone in the world, but it had a direct impact on shipping and by following the trades and trends in shipping and sanctions and that sort of thing, you’re very connected with what was going on in the broad market.
Even if you weren’t invested in shipping, you could still learn a lot about the way the world works, about the way global trade works, just by following some of these trades and stocks.
And finally, the most, I think, important thing, which draws most of us here, is the potentially lucrative opportunities for outsized returns. And we demonstrated that over the last 9 years in our stock picks and we believe we’re poised to do the same thing in 2025 and going forward.
Another key thing about shipping that I think is kind of underrated is there’s a lot of built-in diversification. Shipping is not just a monolith. Not every stock just trades the other in one fell swoop.
There’s 8 different segments, and we’ll just kind of brush quickly past them. But dry bulk, which we’ll talk a little bit more about today, iron ore, coal, grains, that sort of thing.
Containerships, what you see on the trains and the trucks, everything going to Target (TGT), Walmart (WMT), Amazon (AMZN). You hear President Trump talking about import tariffs. That’s something clearly aimed at most of this containership trade.
You have product tankers, gasoline, jet fuel, chemical tankers, very specialized cargo, very specialized tankers that carry this stuff, crude oil tankers, more basic, you can think about it almost like a floating bathtub full of oil, but a much more basic tanker than those more advanced product and chemical tankers.
You have LNG, liquefied natural gas, very high spec vessels doing global trades there. You have LPG and now there’s a developing ammonia trade, which is linked to that.
It’s going to have a strong future heading into 2030 as we start thinking about the new regulations on carbon emissions, and especially in Europe, as they’re a little bit more focused on climate change and reducing those carbon emissions. And then offshore, the oil rigs and servicing vessels and things like that.
Each one of these segments operates on its own sort of independent supply and demand trajectory. Obviously, things are correlated with global macro and global growth and things like that, but the supply of each one of these segments is unique. You cannot use a dry bulk vessel to carry containers or to carry oil or so forth.
So each one of these markets is worth following in its own separately. And one market might be in a bear market, might be doing very terribly, might be a sector you want to avoid for a while, whereas another segment might be doing quite well. So we’re never short of opportunities to invest or to find trades in this segment.
Before we go forward, I do want to kind of address head on some of the misnomers I’ve heard about shipping. And this is coming through after 9 years, almost 10 years of VIE, things I hear a lot. I hear most people lose a lot of money in shipping. It’s a risky space. If you don’t have a strategy, you’re just buying on momentum or you’re buying the stock that you just heard from your buddy or you saw on CNN, then yeah, it might not work out so well.
And you can look at some of the shipping ETFs over the course of time and see the performance there. If there’s no strategy, if you’re just kind of piling in. But if you do have a strategy and understand the dynamics, it’s proven to be very lucrative space for us.
We hear corporate governance is terrible. You can’t trust these ship owners. They’re all trading ships back and forth between cousins and uncles and things like that. The reality is there’s 10 or so publicly listed companies that are so terrible. Of the 45 companies we cover, we don’t even cover these names.
In fact, we don’t even like to talk about it on our chat room or anything like that. So there are a few bad firms that we totally avoid, but there’s also dozens of excellent ones. And of the 45 we cover, at least about 25 of those are excellently managed, good corporate governance, solid performance over the years.
I hear people say these are only trading stocks. You cannot invest in these. And that’s not the case, or at least not what we’ve seen. Trading can be useful. It can help you time your entries and exits and how much conviction you want to plow into a trade. But proper investing based on value fundamentals works quite well in this space.
Again, related to that, people say, well, fundamentals don’t matter. It’s all just trading. And again, the name of our platform is Value Investor’s Edge, right? And so we definitely believe in the value fundamentals and long-term success.
People say, well, shipping’s really volatile. I don’t want to get into a stock that’s very volatile. Yes, the daily and weekly volatility is elevated, but the total returns in my opinion are what folks should focus on and folks should strive for. And those returns have been excellent. So if you can stomach a little bit of up and down over time, historically, I can’t promise future returns, but historically, we’ve done quite well in this sector.
Couple learning points that folks can take note of in shipping. It’s easy to stumble into something new and focus on the wrong ratios. You say, well, I’m a value investor, and J just told me that fundamentals are great for shipping, but be careful of the wrong ones for shipping.
And two of the wrong ones are price to earnings and price to book. And I’ll give you a quick example of that. So it’s cyclical, right? So at the top of the cycle, you might have a price to earnings ratio of 2x or 3x, but if earnings are quickly trending downward and forward demand is poor and there’s a huge glut of supply coming on the market, that price to earnings ratio is not going to help you out.
On the other hand, you’re at the bottom of the market, but things are just about to recover. You might have negative earnings in one of these companies, but it might be an excellent time to invest. So that’s one reason why price to earnings isn’t great.
For price to book, it’s an accounting value. It just means what the company paid for their ships. So if a company went out there and made terrible decisions and bought all their ships at the top of the market, they might have this huge inflated book value. They might look cheap.
On the other hand, a company that was smart and bought all their assets at the bottom of the market, a year later the market’s stronger, the actual real-time value of those assets is higher, but the book value might trade at a price the book of 1.5 or 2 and not look cheap. So those are two examples of ratios that are very common for value investors, but not particularly useful for shipping.
Dividend yields can be misleading, can be dangerous. Again, cyclical industry. So at the top of the market, if you have a company that has 100% cash payout, you might see a huge dividend in 21% yield last year. But what is the yield going to be next year, and so be very careful with looking at those trailing dividend yields.
There’s a big difference between the current rates and the cyclical position – so cyclical, right. So if you’re at the top of the cycle, rates are really strong, they look great, but things don’t look good next year. Probably don’t want to invest at that point in time.
The key in this shipping sector is to understand seasonality as well. There’s certain periods of time where rates are almost always really bad. There’s certain periods of time when rates are really good. And so you want to find those sort of narrative violations.
If you’re in a weak point of the year and the rates are pretty decent, it’s a strong signal that things are getting better. If you’re in a strong part of the year and rates are poor, that’s pretty scary. So we’ll talk about dry bulk later and talk about seasonality. And we’re actually in an interesting period of time right now with dry bulk.
It’s important to look at that corporate governance. We heard sort of the misnomer that you know, these are all terribly managed firms. Well, the reality is some of them are and you got to keep an eye on those and avoid those firms and don’t let them poison the well.
Starting in 2019, we pivoted to a long-only model portfolio. And you can see the returns. At the bottom, a 39.7% annualized from 2016 to 2024. And if you look at S&P 500, it was 14.5%, and the Russell was 8%.
Now I’ve had some folks say, hey, you know, yeah, you got lucky. You were in shipping. Hey, I mean, I love shipping. I’m happy to be lucky. But if you look at the shipping average over the last 9 years, you’ll see it 9.9% annualized. Basically tracking the Russell 2000.
So it’s not simply an industry bias. There’s definitely been some clear alpha in outperforming the average of those shipping stocks.
So with that, let’s get into the meat of it. What everyone’s here for, right, talking about tankers and dry bulk and some of the themes of the year.
For tankers, we believe there’s an excellent supply setup and there’s some potential for a lot of sanction related disruptions heading into 2025, which could be really helpful for rates and help tighten up that market quickly.
So a little bit of background for those of you who haven’t followed crude tankers as closely. This market got decimated by COVID-19. Lot of countries had lockdowns and folks weren’t driving around as much. Gasoline demand plummeted. OPEC plus decided, hey, we’re going to respond to this market and cut our exports and balance to that.
Well, if OPEC’s cutting all their exports, people aren’t consuming the oil. That’s not going to be good for the ships to transport the oil around the world. It was a very poor market. It was slowly starting to recover into 2022 and then the Russian invasion of Ukraine happened. And that led to US and Europe-backed sanctions against Russian oil and diesel exports, which caused a lot of rerouting around the world.
So that suddenly changed the landscape and tankers had a very good year in 2022, 2023, there was extremely few tanker deliveries in 2023 and 2024, and this upcoming year, very few deliveries. So that supply side of the market, keep in mind cyclical industry, it’s all about supply and demand.
On the supply side, we have the oldest fleet balance in modern history, and we have a lot of upcoming regulations that come into place each year, they get more and more strict. They started in 2023 and they go on until 2027. Each year, the regulations get more and more restrictive and it’s going to push a lot of those older ships out of the market.
There’s a few older ships that are still hanging around. You’ve probably maybe heard of the Dark Fleet, which is those ships that transport mostly the sanctioned Iranian and Russian crude oil exports. A lot of those would not pass any of these new regulations in the regular market.
So if there is a normalization in the next few years where these sanctions start to fade away, we’re going to see a lot of those ships head straight to the recycling yards. And no major reputable company is going to want to touch them. They’re dangerous. They don’t meet the recent survey requirements. They don’t meet the regulatory requirements. So we’re going to see a lot of that old tonnage get forced out of the market. The only reason that’s possible is because of those sanctions.
We talked about the regulatory upside from some of the ESG movements and some of the new regulations, particularly in Europe. The regulations over there are even more stringent.
And then here we are in 2025, President Trump recently elected. And it seems like, we don’t know exactly yet, he hasn’t taken office, but it seems like he’s finally going to crack down on the widespread sanctions evasion.
After Russia invaded Ukraine, it took about 7 or 8 months for the US and Europe and Japan and Korea and a few other countries to join in on the sanctions program. It was fairly robust initially, but there are so many loopholes. And there was no enforcement on the actual tankers themselves that were transporting the sanctioned oil.
And so we know from the previous experience with the Trump administration that they are very fond of tariffs and sanctions. And so we see more sanctions and more enforcement in tankers. That could be a massive bull catalyst for 2025. We don’t know for sure yet, but we believe there’s a probability.
There’s also the potential for some sort of Russia, Ukraine, I don’t know if it would be an armistice or ceasefire. Again, we don’t want to get too far ahead of ourselves here, but that is a question that comes up a lot in tankers.
And folks say, well, you just told me, J, that that was helpful for tanker markets in 2022 and 2023 because of the widespread growth in that trade. Wouldn’t that be negative? And it could be negative for a couple months as the ships start to migrate back to their historical trading patterns.
But we just talked about that dark fleet and how it really has no place in a normal industrialized trade plan. So you have 15% or 20% of these ships, pretty much all the really old ones, are all trading the so-called dark fleet. And so if those sanctions go away and there’s some sort of normalization, we should see a lot of that tonnage leave the market very shortly.
So our top tanker pick based on this logic and this reasoning is International Seaways, (NYSE:INSW). I personally have a long position in this. It is in our models at Value Investor’s Edge. At least it’s a pick on our basic platform as well. So definitely eating our own cooking. I’m long as well myself for disclosures.
Some of the charts I wanted to share to talk about the supply side and we were illustrating. This is the VLCC order book, very large crude carriers. Each one of these vessels carries 2 million barrels of crude oil. Massive ships, it’s like the Empire State Building turned sideways, floating in the water there, 2 million barrels of oil.
You can see the deliveries over time from 2005 through the current order book up to 2028. You see a normal delivery trajectory is 30, 35 vessels per year. That’s a normal replacement of the market. Assuming zero growth, right, the market doesn’t grow at all. You still need to have about 35 vessels hitting the water.
You can see in 2023, we were well below that at 22 ships. In 2024, this chart was updated last fall, we update these about every 6 months because that’s about how often the order book might change. There is very little change though in the last few months. In 2024, we only had 2 ships delivered and it’s an all-time record low in modern history. Two vessels delivered. Keep in mind, we need about 35 just to keep the global fleet constant.
In 2025, we’re projected to have only 4 vessels hit the water. So again, it’s just mind blowing. We’ve never had in history 2 years that looked like this on the supply side. Even 2026 and 2027, folks might say, hey, orders are picking up, deliveries are picking up. ’29 and 2024 are nowhere near enough just to replenish the fleet, just to keep things even. And then 2028, we’re just starting to see some orders trickle in. I think we’re up to about 6 as of today.
And so 6.82%, very precise there, is the size of the order book. That is the future supply growth, assuming nothing gets demolished. You can see the all-time record lows there.
Now here is the fleet age profile. And this chart is just gorgeous on the supply side. And you can see that even those busted ships that shouldn’t even be on the water are more than the entire order book combined. So if you have the sanctions go away, you have a return normalcy in the markets, automatically you have a discrepancy there.
You have way more old ships that need to be demolished than you have new supply. The red ships, we call those tired ships, those are ones that as we approach 2030 are going to have extreme difficulty trading in this environment.
Normally a VLCC can trade for about 20, 21 years and then it needs to be removed. So if you think about going forward, long-term investment going to 2029, 2030, basically anything built before 2010 is going to need to leave the market. So you can see, we got about one-third or more of the tanker fleet that needs to leave the market, needs to be gone by 2030. And we have an order book that we just talked about of 7%. So massive, massive discrepancy there.
Again, we got 32% of the fleets over 15 years, and 15% is more than 20 years old. Normally, you would expect the order book to be at least more than the 20 plus, maybe even closer to the 15 plus. We have 15% that are totally obsolete, totally aged, and we have an order book of 6% to 7%.
Here’s a recent trajectory of the trends in tanker ton miles. And so folks might say, hey, J, tanker rates aren’t super strong right now. And that’s a great point. That’s something worth bringing up.
And this shows in 2024, we had a very lackluster Q4. You see the ton miles there kind of drop below. It was below 2022 and 2023. Now there’s two large trends driving this.
Number one is a bit of a slowdown in China. China is one of the major importers of crude oil. It used to be the United States many years ago now, but now the United States is self-sufficient in oil and it’s countries like China that do most of the imports. That’s one factor driving this.
Another factor was there seems to be a lot of the sanctions front running. It seems like some of these countries figured that maybe President Trump might be elected and there might be some serious crackdown. So there was a stockpiling ahead at midpoint of the year into the first parts of Q3, loading up on that Iranian crude oil, loading up on that Russian crude oil, and sort of front running the market a little bit on that.
And number 3 is OPEC and their OPEC+ wider alliance has been responding to the weaker oil prices and is deliberately holding oil back. They’re not increasing their exports. They’re running way below their capacity. And of course, the VLCC market, one of the largest routes, most popular routes is from the Middle East Gulf, I think Saudi Arabia and those sorts of countries over to Asia, primarily China and India.
So if OPEC+ is holding back their exports and China is in a little bit of a lull and they’ve already kind of front-ran the market by buying all that Iranian crude over the summer, you have a pullback in Q4, which is holding back rates. But we expect this is going to normalize heading into 2025 and beyond. We don’t know, of course, for sure, but our expectation is we’ll see a chart much more similar to what we saw in 2022 and 2023, leading to a more robust growth next year.
Keep in mind, there’s basically zero supply growth. So any sort of growth in demand, new sanctions, getting rid of the old fleet, or OPEC+ exporting a little bit more oil, that is going to significantly change this sort of chart.
Here is the ton miles by location. I mentioned that China is the number one destination. You can see it takes up over one-third, about 35.5%. This was through October of 2024, so very recent market trends there. And South Korea is also a huge importer in Japan. So if you take China, South Korea, and Japan, you have more than one-half of the entire VLCC market. So it’s very Asian based on the destinations.
Just to highlight our top pick for tankers, International Seaways. They have both crude tankers and product tankers. They are a US headquartered company, US listed, excellent corporate governance. I’ve known both the CEO and CFO personally for over 6 years now, been very pleased with their capital allocation.
They have a steady dividend. You can look up their dividend policy and they also have an active repurchase program. So very a big fan of International Seaways. And of course at the bottom there, there’s a few other names that you can write down and pay attention to.
With that we’ll pivot to the second industry we’re going to talk about today, the dry bulk markets.
The dry bulk markets aren’t as exciting right now in the rates, but they’re quite, the demand and supply balance is quite tight, which sets us up interesting for 2025 and 2026, especially considering some of the stocks trade at extreme values that we haven’t seen for several years. They trade roughly equivalent to the mid-2020 COVID lows, much better overall global backdrop than we had in 2020, and yet the stocks trade at similar valuations. So it’s very, very interesting to see that.
As I mentioned, the dry bulk markets are pretty close in supply and demand. You can tell it’s a balanced market because anytime there’s a news catalyst or some sort of event, you see the rates move and respond to that. But China has been quite weak in 2024.
China is teetering on either a flatlining economy or perhaps a recession. So that’s your big risk in dry bulk. It’s very China dependent.
However, if we zoom out a little bit and we look at the minor bulk markets, so some of those smaller vessels that do a more global trade, think grains, wheat exports, things like that, soybeans, we see very robust overall global economic demand.
So it’s really just the large ships that service China. They carry that iron ore and coal that have kind of slowed down a little bit. The smaller ships are very robust. And again, that supply demand is quite tight.
The supply on the Capesize market is similar. Not quite as beautiful. I mean, the VLCC charts were gorgeous, but the Capesize supply is set up is also very attractive, especially as we look towards 2030, including some of those environmental regulations. And we’re going to see a lot of those non-eco tonnage, the stuff that was built before 2014. It’s going to be obsolete by 2030.
After 15 years, these ships are not competitive in major tier 1 markets. And so you can only do sort of the sketchy backwater trades with these older ships. And so when we focus on the modern eco-design tonnage, we have a very favorable supply setup as we approach 2030.
If we have additional Chinese stimulus, we’ve seen this in the past, rates can quickly respond to that. In 2024, China announced a little bit of stimulus, but it was far less than was previously anticipated, and it wasn’t enough to move the market, but if China does double down on infrastructure and redevelopment, we could definitely see a surge in iron ore imports.
There’s a massive new iron ore mine that just is getting started in Guinea. It’s just starting to — finishing touches of it right now. In 2025, it’s slated to open and begin full exports in 2026. This mine is primarily going to service China. And the distance from Guinea to China is 3x the distance from Australia to China.
And those of you who’ve been paying attention to geopolitics and some of the recent headlines know that China and Australia have been getting frostier and frostier over the last few years. And so China is looking to diversify. I mean, it’s smart of China to do this. They’re looking to diversify their iron ore. Right now, Australia provides about 60% of China’s iron ore, and the rest of it comes from Brazil.
So China is looking to diversify. They’ve heavily funded and backed this huge iron ore project in Guinea. And again, every ton of iron ore that China replaces away from Australia and pulls it from Guinea is going to triple the distance that’s required. So in shipping, we measure demand by ton miles, the amount of cargo and how far it goes.
So even if China’s demand grows by zero, if they just replace 20% of their iron ore away from Australia and start pulling it from Guinea, that alone is about 6% to 7% global demand growth. So overnight, just by that swap.
So it’s very exciting catalyst that’s going to start up in 2026. And as I mentioned at the start, dry bulk stocks are near all-time or near all-time low valuations.
And this kind of makes sense, right, because folks are pessimistic about China. They’re concerned about a flatlining economy. They’re concerned about a potential recession this year or next year. And so I understand that sentiment. I’m not discounting that. I’m not saying there’s no concern there.
But when you see these stocks with very clean balance sheets, leverage very low, trading at these near all-time low valuations, well, we just talked about the excellent supply setup, the promising demand side of things. It looks like a very attractive investment opportunity at this point in time.
So our top dry bulk stock, I’m long this one as well. It’s also in our VIE models. Star Bulk Carriers, (NASDAQ:SBLK). This has been an excellently managed firm. I’ve followed it now for over 10 years.
Oaktree was a major investor. They cashed out of a lot of their position last summer in the 25-plus range. Star Bulk has now pulled back significantly. So good on Oaktree. They timed it quite well. But Star Bulk is back into 14s, mid-14s, $14.50, $14.80 sort of range right now.
It’s a very attractive name. They have a clean balance sheet, only about 20% leverage, which is very low for shipping. Historically, a normal leverage ratio would be about 50%. Right now, our Star Bulk is at 20%. They trade at the lowest enterprise value to gross asset value.
I know that’s kind of esoteric valuation model, but that’s one of the ways we look at shipping. I talked about the ratios that don’t work. Price-to-earnings doesn’t really work. Price-to-book doesn’t really work. The two ratios that we really like are price-to-NAV, which is net asset value; and enterprise value to gross asset value, which takes into account the leverage.
And when you take into account Star Bulk’s low leverage, it currently trades at the lowest enterprise value ratio in history. It’s never traded cheaper, which is phenomenal for a company that is the global leader in publicly traded dry bulk companies. They have a fleet of nearly 150 dry bulk vessels, so a lot of scale, very strong corporate governance, very strong dividend policy, active repurchase program, so it’s really a name we like here.
A few other names if you want to write down and track along with those, they’re at the bottom of the screen there. Leave this up for a few seconds before I move on.
Similar charts that I showed in tankers, this is the Capesize order book, updated as of December, so very recent chart here. You can see over time, the average deliveries of the fleet, of course, they vary, it’s a little bit chunky, but basically about 80, 90 vessels required just to hold the global fleet steady, just to replenish. So needing about 80 or 90. Last year, we had 46, so halfway there. This year, we have 39, again, only about half as much as we need to keep the global fleet steady. 2026, 2027, those orders in ‘26 and ‘27 are already booked out.
So anyone building or ordering a dry bulk vessel today is going to get it in 2028. You can even see 2029, it’s just two ships, but you can see even now orders are coming out to 2029. And you can see all of those years from 2022 onwards, to the last, what is that six years there, seven if you include 2028, are far below the replacement level that’s required.
So you might say, well, why is dry bulk market not stronger? What’s holding it back? This. This is holding it back. The massive glut of deliveries that hit the market in 2009 to 2012. This was during the mid-2000s, late-2000s. We had an everything bubble, right, not just a global financial crisis because of housing, but we had a bubble in basically everything.
And so dry bulk markets were really hot in the mid-2000s, and everybody went out and bought all these ships on the promise that China was going to grow 20% per year, the growth was never going to stop. We had Capesize vessels trading at $100,000 per day. I mean, in context, they trade at like $10,000 a day right now.
So insane rates. And so everyone went out there, ordered every ship they could find, and basically ruined the entire market for 10-plus years. And so if we look at this similar chart, it shows the aged, the tired versus aged. I mean, these purple ships shouldn’t even be on the water anymore. They’re very dangerous. They’re only around with illicit trades. These red ships are not competitive.
And now you have sort of the middle of the fleet here. This will kind of break it down here showing that 30% of the entire global Capesize fleet was built in 2009 to 2012. You might say, well why do I care? Yeah, gee whiz, right? But 15 years is a key pivotal point at which these ships can no longer really handle Tier 1 cargoes.
Major industrial partners like Cargill and firms like that, are not going to want to deal with ships that are much older than 15.
So if you add 15 years to that, you get 2024 through 2027. It’s a very pivotal time of where 30%, almost a whole third of the global fleet is going to transition from Tier 1 into sort of a Tier 2 backwater of the market.
And then after 20 years, almost nobody will touch these ships. So it’s a very, very interesting supply setup as we head towards 2030. In fact, it started about last year and it’s going to go through 2027 is that huge pivotal point.
This is the minor bulk trade. We mentioned this earlier because a lot of folks are concerned, rightfully so, about Chinese weakness.
But if we look at minor bulk trades, which is kind of the rest of the world, grains and smaller things like that, cobalt and bauxite and things like that, you can see that in 2024, this orange chart here is actually a record high year in minor bulk, highest year on record and well above the previous years in trajectory almost every single month.
And so that’s showing us that the rest of the market, the rest of the world is actually quite strong. So if China does even decently in 2025, we expect this market could tighten up quite quickly.
Here is the Baltic Dry Index Average. This is going through each particular year. Last year, you can see it was kind of a poor year. Well, people are concerned about Chinese weakness. Last year wasn’t very strong for rates. It kind of makes sense why these stocks would be cheap, right?
And so if we want to do well in shipping, we try to invest right before, I mean, maybe not. We’re not perfect at timing. We’re not always a month before. Sometimes we’re six months early or something like that. But we try to invest in the market that nobody else wants to touch, everyone else thinks the trade is not working, and we like to get into a market that has this promising supply setup, it has demand catalyst, we talked about one of them there with that mine in Guinea and bombed out valuations.
And here we have it with Star Bulk, all-time low enterprise value to gross asset value, and we have the very, very promising supply setup and we have a demand catalyst upcoming in 2026. So if we look at talking about China and why people care about that and why it’s risky, China is 53% of the global dry bulk market. The rest of the world is 47%. And we showed it’s not a perfect indicator, but we showed how the minor bulk sort of gives us a look through to how the rest of the world is doing. And that 47% is doing pretty well, right? And then the 53%, China definitely struggled in 2024.
So this definitely China-related play. There’s definitely a lot of risk there. So that needs to be known upfront and understood. But we believe that with that new iron ore mine coming online in 2026, even if China’s growth is not strong, even if it’s a flatlined year, just the transition away from Australian iron and towards iron out of Guinea and more iron out of Brazil, just that alone can grow the market by 4% or 5% per year, just that catalyst.
JM: We have so many questions that came in, J. Thank you so much for that information. Let’s go ahead and get started on them.
One of the questions that Peter is asking actually has to do with one of your picks, (INSW). What would be a good entry point for that?
JM: Yeah, it’s a great question. I personally am not usually into like technicals and things like that. I mostly am focused on the fundamentals of a market. So I look at ratios like price-to-NAV. I try to look at where we are in the cycle, looking at the supply side and the demand side.
For us at this point in time, we believe International Seaways is fairly valued somewhere in the mid-50s to $60 range.
So certainly far higher than it is today. Of course, that’s our prediction – not our prediction, but that’s sort of our guess of where it should be fairly valued. There’s no guarantee it gets to that point. But we believe right now at this point in time, International Seaways is very attractively valued. Could it go cheaper? Yes, it could.
And so I think that each individual investor and trader should use their own sort of technical approaches and things like that. Obviously, consult your own investment advisers, consult your own tax experts and things like that before doing any sort of trading or investing of your own. But we believe International Seaways is very attractive at this pricing. And I believe a very reasonable fair value estimate for International Seaways right now is at least in the mid-50s.
JM: Perfect. Let’s go on to the next question. Steven is asking, he says that my understanding for the shipping industry is that it is very much influenced by geopolitics. As an individual investor, how do you hedge the risk there?
JM: Yeah, that’s an excellent question. And I think one of the ways that we sort of internally hedge some of the risks is by diversifying our model portfolios across lots of the different segments.
At Value Investor’s Edge, we have two model portfolios. One of them is a value model, focused mostly on high-quality and cheaper stocks. And we have a speculative model, which is a little bit more aggressive, right? We’re looking at target, targeting the market timing. We’re looking at where we are in the cycle, maybe accepting firms that have a little bit more leverage or a little bit riskier management structure, things like that. But overall, those two models usually have 12, 13, maybe 14 picks between them.
So right now, we have 13 active picks between those two models, and they have diversification across the segments. So that’s one way we definitely hedge some of that risk, because any time you have one event hit a segment, usually those other segments are not very much impacted by that. I know that doesn’t answer the question maybe directly. I’ll try to expand a little bit more, but diversification across the segments is definitely one of our key strategies.
Another strategy I use personally is more of a systemic hedge than geopolitics specifically. But in a market like today, where medium-dated, longer-dated S&P 500 puts are quite attractive, I try to hedge out some of the systemic risk. I’ll have my long stocks, favorite picks, and things like that. And then I’ll have a market hedge just holding back against that systemic hedge.
As far as specific events that could hurt a certain segment, for example, a perfect one, perfect example, we did talk about containerships today. But if the Trump administration takes office and puts in a ton of new tariffs against imported goods, that’s going to be a major drag against the containership industry.
So I hate to say like, we hedge against that by being quicker, but we have to – we respond to news. And so pivoting gears one more time, if we look at the Russian invasion of Ukraine in February of 2022, right after that happened right away, we were saying, tankers is the place to be right now. There’s very much likely to be these sanctions. It’s going to impact trade flows.
Over the next week or two after that invasion, tanker stocks did move. They moved about 10%, 15% up, but we thought the upside was far higher. And sure enough, after about a year, year-and-a-half later, most of those stocks were up about 3x. So 200% returns, but we had a week, two weeks, almost three weeks before the stocks even started moving. So there’s definitely an advantageous period in time.
So to summarize, I know that was a long answer, but number one, we diversify our models across lots of different shipping segments; number two, consider systemic hedges against the broad market volatility; and then finally, number three, we have to stay plugged into the market and be quickly reactive to these news stories.
JM: All right. Thanks for that answer. Now, we’re going to try to get to two more, and then I’ll ask for your closing thoughts, because we only have a couple of minutes left.
We have quite a few people that asked about your thoughts on (NYSE:ZIM). Is it overpriced?
JM: It’s not surprising to see so many folks interested in ZIM Integrated Shipping, stock symbol, ZIM. For those of you who are listening and aren’t aware of that company, it is a containership liner. So they transport containerized 20-foot, 40-foot boxes across the ocean.
ZIM is a smaller player in the segment. They only do about 2% of the global capacity, but is one of the largest U.S.-listed shipping companies. ZIM has been extremely lucrative for us since it IPO-ed, it IPO-ed at $15 back in at 2021 there in the spring. It fell down $11, $12 and then rose all the way up to $90.
So it was like an 8x return. A lot of people love ZIM because of the volatility. It trades really cheaply. Right now, it trades cheaper than the net cash on its books. So those are kind of like the pros and why people like them.
They also have a huge dividend payout. So it’s a very interesting firm. It’s also a trader’s dream stock. It’s very volatile. It goes up and down all the time. So folks who like to trade, ZIM is attractive.
The downside of ZIM is from tariffs. I mean, tariffs are – it doesn’t take a genius to explain. I don’t need to bust out my PhD dissertation to explain that tariffs are not going to be good for containerized shipping. So ZIM has a lot of risks.
The other big risk of ZIM is even before we talk about tariffs and those disruptions, we could see there is that the forward supply is terrible for containerships.
We spent about 15 minutes today talking about how good the supply looks for VLCCs and crude tankers and how good it looks for Capesize dry bulk vessels, containerships are completely the opposite. The supply side looks horrendous.
So I kind of laid out some of the pros and cons for ZIM. We believe it’s interesting right now. It’s a name where it can certainly be a good trade. If there’s any sort of port strike here, January 15th is the deadline for a new deal on the East Coast of the United States between the dockworkers and the major shipping lines out there.
And so if there is a port strike, ZIM is going to probably do fantastic. So it’s interesting, right? And I know maybe that’s a cop-out, not a great answer, but ZIM is at this interesting price level where it’s not – I can’t come out and bang the table on ZIM and say, hey, it’s cheap, you got to load up. But it’s also not expensive.
And I think the question was, was it overvalued or expensive? No, we don’t believe it’s overvalued or expensive. But it’s kind of just in no man’s land right now on the pricing and valuation. And ZIM for us right now is really more of a trade, not an investment at this point.
JM: All righty, J. We are out of time, actually, 10 seconds, closing thoughts.
JM: Thank you, everyone, today for joining the webinar. I hope you learned some interesting things about shipping. You can follow me for free on Seeking Alpha and learn a little bit more about shipping or look me up on X @mintzmyer and then I also shared the links to our research platform, which is hosted here on Seeking Alpha.
Thanks again, everybody, for your time today. And Julie, thank you for being an excellent host.
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