Huayuan Securities released a research report stating that VLCC freight rates surged during the 2026 Spring Festival period. The one-year time charter rate for VLCCs soared to $93,000 per day, catalyzed by fundamental factors and the "Changjin factor," reaching a record high since 1988. As of February 20, the forward freight agreement (FFA) for the VLCC Middle East route has been priced at an average of $147,000 per day for February and $169,000 per day for March. The strong performance of VLCC freight rates in the first quarter of 2026 is driven by three key trends: fundamentals, supply-side restructuring, and geopolitical shifts. Regarding investment targets, it is recommended to focus on China Merchants Energy Shipping (601872.SH), COSCO SHIP ENGY (600026.SH, 01138), and China Merchants Nanjing Tanker (601975.SH). The main views of Huayuan Securities are as follows:
VLCC freight rates surged during the Spring Festival, with time charter rates hitting a record high. During the 2026 Spring Festival period, VLCC freight rates rose sharply from already elevated levels. On February 20, freight rates for the VLCC Middle East, West Africa/Latin America, and US Gulf routes were $157,000, $137,000, and $101,000 per day, respectively (up 28.5%, 28.7%, and 8.7% from February 13), exceeding the peak levels seen in November 2025 and reaching the highest point since April 2020. More notably, the one-year time charter rate for VLCCs, driven by fundamentals and the "Changjin factor," surged to $93,000 per day (as of February 20, up 28.5% from February 13), setting a record high since 1988.
The influence of the "Hundred-Ship King" Changjin Shipping on market pricing is becoming apparent. The significant rise in VLCC freight rates during the 2026 Spring Festival may be largely influenced by the "Changjin factor." On February 17, VLCC freight rates for the West Africa/Middle East route broke through the $120,000 per day mark. Among the three cargo deals concluded that day, two were operated by Changjin. Notably, both vessels operated by Changjin had been idle for some time before the deals were made; one of them (VL Prosperity, built in 2015) was even idle for over 30 days before the transaction. Given that VLCC freight rates are highly sensitive to changes in supply-side capacity, Changjin Shipping, the "Hundred-Ship King" controlling 120-130 VLCCs, may be influencing market pricing by managing effective supply.
Trump issues an "ultimatum" to Iran; US aircraft carrier "Ford" set to arrive in the Middle East. On February 19, Trump issued an "ultimatum" to Iran, demanding a nuclear agreement within 10 to 15 days or facing "serious consequences." A large-scale buildup of US naval and air forces is gathering in the Middle East: the "Lincoln" carrier strike group has already been deployed, and the "Ford" carrier strike group is soon to arrive; the US aerial presence in the Middle East is the largest since 2003, potentially capable of sustaining weeks of airstrikes. Israel is simultaneously enhancing its combat readiness. Iran is reinforcing its nuclear facilities and has warned of self-defense countermeasures. The outlook for the Middle East situation remains complex. If the conflict escalates, it could impact crude oil shipping from Iran and even the wider Middle East. It is advised to monitor subsequent developments.
The average VLCC freight rate in Q1 2026 is expected to reach a record high. As VLCC freight rates continue to strengthen, VLCC freight rate futures (FFAs) are also strengthening. As of February 20, the FFA for the VLCC Middle East route has been priced at an average of $147,000 per day for February and $169,000 per day for March. Considering that the average VLCC Middle East route freight rate in January was $79,000 per day, the average for Q1 2026 is expected to reach approximately $131,000 per day, significantly surpassing the best historical Q1 performance (the previous best Q1 performance for VLCCs was $92,000 per day in 2008).
Risk warnings include crude oil production increases falling short of expectations, geopolitical event risks, uncertainty regarding US sanctions, crude oil demand falling short of expectations, and slower-than-expected scrapping of older vessels.