Imagine getting paid $800,000 just to move a ship from point A to point B. That's the reality right now for owners of Very Large Crude Carriers (VLCCs), the massive tankers that haul oil across oceans.
Indian shipping stocks are surfing this monster wave. Great Eastern Shipping Company and Shipping Corporation of India both sport healthy Return on Equity numbers—15.9% and 15% respectively. But here's the puzzle:
The market is sending a clear signal about sustainability, and smart investors should pay attention.
The Strait of Hormuz, the world's most important oil chokepoint, has been practically shut for over 10 days. With 20% of global VLCC capacity sitting idle because vessels over 20 years old aren't permitted to sail, you've got a classic supply crunch meeting panic demand.
Shipowners are terrified of sending vessels into a war zone. The result? Oil companies are paying through the nose to secure capacity. Suezmax rates to southern Europe have hit $275,000-300,000 per day, while VLCCs on some routes are approaching $1 million daily. The Baltic Exchange's Middle East Gulf-China index sits around $982,000.
This isn't the first time we've seen this movie. In February 2022, VLCC rates were actually negative—minus $3,130 per day—because demand for long-distance oil transport had virtually vanished during COVID. But by November 2022, fears of fuel shortages in China and India drove rates to $84,660 per day. The Russia-Ukraine war forced Russian crude to travel longer distances to Asia instead of Europe, creating a ton-mile boom.
The company expanded its owned tonnage from 3.04 million deadweight tonnes to 3.24 million dwt over the past year, positioning itself perfectly for this surge.
But here's the thing: Great Eastern runs predominantly on spot contracts.
That means when rates spike, Great Eastern captures almost all the upside. When rates crash, it takes the full hit on the chin. InvestorPresentations
Shipping Corporation of India plays it differently. The company mixes spot charters with long-term contracts and government agreements. Five VLCCs work mainly on spot charters, but Suezmax vessels and LR1 tankers operate on a mix of arrangements. More importantly, offshore vessels enjoy long-term charters with ONGC, providing a stable earnings floor. AnnualReports
That P/E difference—5.3x for Great Eastern versus 8.1x for Shipping Corporation—reveals everything about market expectations. Great Eastern's historical P/E has swung wildly from 3.9x to 31.8x over the past five years. The market knows this company's earnings are about as stable as a house of cards in a hurricane.
Shipping Corporation's government backing and diversified revenue streams command a stability premium. The company enjoys long-term charters with government entities, protected coastal trade markets, and strategic importance to India's energy security. When freight rates crash, Shipping Corporation's earnings might fall 25-35%. Great Eastern's could drop 40-50%. AnnualReports
That's an 11% premium to the current market price of 5.3x. Management is essentially saying: "We think our stock is cheap even at these elevated earnings levels."
But history suggests caution. Shipping companies have a terrible track record of timing their buybacks at cycle peaks. In FY22, Great Eastern bought back at 28x P/E right before earnings collapsed. This time the valuation looks more reasonable, but the cyclical risk remains. Transcripts
The Middle East situation resolves. Diplomacy breaks through. The Strait of Hormuz reopens. Suddenly, those $800,000 daily rates could crash to $100,000 or lower within months. Great Eastern's spot-heavy model would get hammered. Even Shipping Corporation's diversified approach would suffer, though less severely.
China's crude imports already fell 35% year-over-year in 1QFY27 as refineries cut runs and destocked inventory. If Chinese demand stays weak, it doesn't matter what happens in the Middle East—the freight market softens anyway. InvestorPresentations
Then there's the orderbook. Crude tanker orders stand at 27% of existing fleet capacity, with significant deliveries coming in 2026-27. All those new ships hitting the water right when geopolitical tensions ease? That's a recipe for freight rate collapse. Transcripts
Great Eastern Shipping offers the upside of a leveraged bet on continued chaos. If Middle East tensions escalate further and rates stay elevated for another year, this stock could deliver 120-150% returns. But if the situation normalizes quickly, shareholders could face 60-80% losses.
Shipping Corporation of India provides a more balanced proposition. Less upside in the bull case, but significantly more protection on the downside. The government relationships and diversified charter base act as shock absorbers when the cycle turns. AnnualReports
The current freight rate surge is real and extraordinary. But shipping cycles have taught us one lesson repeatedly: what goes up spectacularly tends to come down just as fast. The question isn't whether rates will normalize—it's when. Smart money is already positioning for the turn, even as the party rages on.
