Houthi Attack Ships, Rates Soar

Christian DeHaemer

Posted January 9, 2024

Houthi Attack Ships, Here is How to Profit

They say you should buy when there is blood in the streets, well we have blood in the water.  

The Iran-backed, Houthi rebels in Yemen are attacking ships in one of the most busy shipping lanes on earth.  This has caused many shipping companies and insurers to halt traffic through the Suez Canal and the Red Sea.  And the ones that are braving the gauntlet are getting big bucks to do so.

Transport Topics writes:

Short-term rates for container shipping between Asia, Europe and the U.S. are climbing on reduced capacity caused by the threats to cargo vessels in the Red Sea.

The spot rate for shipping goods in a 40-foot container from Asia to northern Europe now tops $4,000, a 173% jump from just before the diversions started in mid-December.

The cost for goods from Asia to the Mediterranean increased to $5,175, adding that some carriers have announced prices above $6,000 for this route starting in mid-January. Rates from Asia to North America’s East Coast have risen 55% to $3,900 for a 40-foot container.

No water in the jungle

But that’s not the only issue.  The Panama Canal is running out of water due to a drought and has restricted the number of ships that can go though.  New rules limit the draft of a ship and the number.  There are only 32 ships allowed to pass a day.

Record El Nino weather patterns are expected to last for the next ten months.  This means that shipping must go the long way around South America and Africa.  This in turn means that ships are in demand.

The good news for us investors is that shipping companies are undervalued.  One container shipping company, ZIM Integrated Shipping Services Ltd. (ZIM) has seen its share price double in the past month.  

The company provides container shipping and related services in Israel and internationally. As of December 31, 2022, it operated a fleet of 150 vessels, which included 139 container vessels and 11 vehicle transport vessels, of which nine vessels were owned by it and 141 vessels are chartered.

I recommended the company during covid when all of the supply chains were screwed up and container shipping was getting top dollar.  It was a nice trade at the time, climbing from $12 to $84 at the top.  It has since sold off and now trades at $12.77.

Other companies are going out of their way to avoid missile and drone strikes.  I like oil tanker shipping companies.  I’ve been holding oil tanker stocks since the Russian war rerouted the oil supply lines.

Rates are up across the board.  

Ships hauling refined products to Japan from the Mediterranean climbed about $8,000 to $26,000 last week. Doreian LPG (LPG) saw its share price jump 184% over the past 52 weeks.  The company has a p/e ratio of 7 and pays a 8.43% dividend.  What’s not to like?

I own DHT Holdings (DHT) which has a p/e of 9 and pays a 10.87% dividend. It has a fleet of 23 very large crude carriers. The company was incorporated in 2005 and is headquartered in Hamilton, Bermuda.

The stock doubled in 2022 but consolidated most of last year.

TeeKay Shipping (TNK) is another one that should benefit.  It is the world’s leading tanker operator and ranks first among the big tanker shipping companies with revenue of $1.45 billion and a market capital of $1.8 billion.  It has a p/e ratio of 3 and pays a dividend of 1.84%.  Earnings grew 20% last quarter but should do even better this quarter.

I own its parent company TK Shipping (TK) which owns about 30% of TNK.  TK is hitting 5 year highs and just issued a dividend of $0.25 per share.  In the conference call the CEO pointed out that new ships coming on line were at 15 year lows as the entire fleet is aging rapidly.

This means that the shortage in global tanker stocks will continue for years.

All the best,

Christian DeHaemer 
Pro Trader Today