CITIC Securities has released a research report stating that the market is focused on the sustainability of freight rates and whether peak-season rates will climb further. The report highlights that the upward spiral in effective capacity losses, combined with a surge in cargo volumes, is squeezing the transportation side, suggesting that short-term freight rates still retain upward resilience and have yet to fully reflect the tightness of supply-demand dynamics.

The report notes that dark shipping, rerouting, and STS transfers near the Gulf continue to erode effective capacity. The rate rally is clearly spreading from specific routes to all vessel classes. Amid a scenario where securing a vessel is extremely difficult, million-dollar TCEs have emerged, and crack spreads exceeding $100 per barrel for some products are intensifying the scramble for cargo among commodity traders and Gulf-based producers. The report anticipates that post-holiday cargo volumes from October to November will be stronger than September, leading to peak-season freight performance that exceeds expectations. It continues to recommend the reshaping of the tanker shipping cycle paradigm.

Where the Market Stands

Freight rates for various tanker classes have hit record highs, with one-year charter rates for eco-friendly VLCCs nearing $200,000 per day. The market is questioning whether these rates are sustainable and if there is further upside during the peak season. The report asserts that the core contradiction since August 21 revolves around the spiral of effective capacity losses clashing with increased cargo volumes. Current rates do not yet reflect the full extent of the supply-demand squeeze, leaving room for further increases.

According to Clarksons data, eco-friendly VLCC one-year time charter rates rose to $175,000 per day in the week of September 18. Average TCEs for VLCCs and Aframaxes in the week of September 18, 2026, surged by 42.3% and 18.5% week-on-week to historical highs of $631,000 and $177,000 per day, respectively. Gulf-region VLCC TCEs have exceeded $1 million per day, underscoring the intensity of the current market. The focus remains on the sustainability of these rates and the potential for further highs in the peak season.

Reassessing the Tanker Cycle

The report references its earlier work from April 6, 2026, which first proposed that the asset attributes of tanker fleets are shifting from a "low-return, strongly cyclical" nature to that of a "essential strategic asset". The traditional supply-demand analysis framework for the shipping cycle needs to be adapted and optimized accordingly. It maintains a strong recommendation, expecting that tanker leaders' valuations and profits could hit record highs in 4Q26.

The spiraling loss of effective capacity has become a critical marginal variable that cannot be ignored. Over 85% of cargo volumes in the Middle East region are now routed through various forms of transshipment. Port congestion at Fujairah and Egypt's Ain Sokhna is becoming increasingly prominent. With stricter future shipyard inspections, the "vessel scarcity" situation could provide significant support for further short-term freight rate increases.

The Strait of Hormuz has moved away from a binary state of being either fully closed or fully open. With simultaneous disruptions in both the Strait of Hormuz and the Bab el-Mandeb, and ongoing missile threats to vessels and pipelines, the broader Middle East region is expected to maintain exports of 9-10 million barrels per day. However, since August 21, effective capacity losses have mounted due to dark shipping, STS transfers near Fujairah, and rerouting, with congestion times at ports like Fujairah and Ain Sokhna extending beyond 10 days.

Under a neutral assumption, waiting times at ports outside the Gulf have increased by 6-8 days compared to pre-August 21 levels. Given that the Persian Gulf-to-Singapore round trip takes 28-32 days, this roughly translates to an 18.8% to 28.6% loss in effective capacity. With import volumes from major Asian consumers like Japan and China increasing month-on-month, the tightness of "vessel scarcity" is set to persist.

Additionally, port congestion in Egypt is driving a noticeable increase in ton-mile demand. Tonnage that shifted to the US Gulf in June-July is now returning to the Mediterranean or the Middle East. In the week of September 18, the BDTI TD22 route (US Gulf-China) soared to $347,000 per day, a 1.3-fold increase from the week of August 21. In this environment of frequent geopolitical events, China Merchants Energy Shipping, with its more flexible operational mechanisms and superior fleet structure, is poised to be the first to benefit.

Demand-Side Shifts and Refining Margins

Unlike the 2Q26 Gulf region's state of "rising prices with falling volumes", the current cycle is characterized by a stronger desire among Gulf producers to export and a turning point in major consuming nations' imports. The continuous widening of crack spreads is intensifying the scramble for cargo among commodity traders and charterers. The report expects transshipment volumes from the Gulf to increase further in September, indicating resilient peak-season demand.

The report argues that a strategy of "parallel import and export, using overseas export profits to subsidize refinery cash flows" is viable. Since August, refinery run rates in Asian regions have been on the rise. Winter demand for refined products, the extended Russian fuel export ban, and damage to key regional refineries are likely to align with growing crude consumption, boosting the export aspirations of Gulf producers like Iraq.

According to CME and S&P Global data, US and European diesel prices stand at $212.4/bbl and $209.2/bbl, respectively, while Brent crude's latest settlement is $98.85/bbl. Excluding other costs, crack spreads have widened to $113.6/bbl and $110.4/bbl, further fueling import demand from commodity traders and charterers.

Strategic Asset Value on the Rise

"Supply chain stability and security" is replacing the "efficiency and cost priority" of the globalization era as the primary core element, with pricing power clearly shifting towards those who control capacity. While the market partially worries about the potential impact of future deliveries, the report argues the opposite: the tanker market over the next 18 months should focus more on the tightness brought about by "vessel scarcity".

Data from Clarksons shows that while 306 VLCCs are scheduled for delivery by 2030, there are currently 437 VLCCs over 20 years old. The report estimates that new deliveries in 2027 will not even be sufficient to cover the losses in effective capacity and the replacement of aging vessels. With expected stricter shipyard inspection standards and potential marginal changes in port reception standards and efficiency, effective capacity losses could rise further, while an increase in scrapping of older vessels is anticipated.

Clarksons data also reveals that the trading price of a 10-year-old VLCC has risen to $140 million, and 5-year-old VLCCs command a clear premium over newbuilds. Recent high-priced VLCC purchases by entities like Iraq's State Oil Marketing Organization (SOMO) and ADNOC highlight the growing importance of tanker fleets as "essential strategic assets" across the industry chain. The rising replacement cost is bolstering the safety margin for leading tanker companies.

Risks

Key risks include weaker-than-expected restocking demand, geopolitical conflicts having a greater-than-expected impact, and a slower-than-expected recovery of transit through the Strait of Hormuz.