Shipping companies make the most of rising freight rates, posting record profits

Freight rates are the prices shippers pay to transport cargo by sea. They cover the use of a vessel and its capacity on a particular route. Cargo can include containers filled with manufactured goods, crude oil, or other energy supplies.

These rates change with market conditions. When ships are scarce, or voyages become longer and riskier, carriers can charge more. The article describes higher costs being passed on to customers, especially for energy shipments. For example, transporting petroleum from one place to another cost ten times more during the year.

Freight rates matter because they influence the final cost of traded goods and energy. They also determine shipping companies’ income. Since average maritime earnings were 75% higher than the previous year, carriers and tanker owners have been able to report much stronger profits.

Maritime shipping earnings increased 75% compared with the previous year. They were also 92% above the average for the previous 10 years. These figures show how unusually profitable the shipping market has become.

Oil-tanker transport prices rose far more sharply on some routes. The article says the cost of shipping petroleum multiplied tenfold during the year. By mid-October, moving two million barrels from West Africa to China cost more than $770,000 per day. The Gulf of Mexico-China route cost $600,000 per day.

The increases reflect longer voyages, fewer available vessels, insecurity, and strong demand for energy transport. Tanker owners keep much of the difference after operating costs. Frontline reported $659.2 million in second-quarter profits, while DHT Holdings reported record profits of $198.3 million.

A conflict can raise shipping profits by reducing the effective supply of vessels. When a major route is blocked or unsafe, ships must travel farther, spend more time at sea, and complete fewer voyages. The available fleet therefore carries less cargo over a given period.

The article describes this effect around Hormuz. Its blockage forced ships onto longer routes and reduced the number of available vessels. Iranian strikes also increased insecurity and costs. Shipping companies passed those costs to customers, especially for energy shipments. Oil transport prices multiplied tenfold during the year.

If demand for shipping remains strong, customers compete for limited vessel space. Rates then rise sharply. Tanker owners benefit because operating costs do not increase as fast as revenue. Frontline made $659.2 million in second-quarter profits, while its shares rose 170%.

The article does not name specific alternative routes. In practice, ships outside the Persian Gulf can reroute around the Arabian Peninsula and, for some voyages, around the Cape of Good Hope. Some Gulf cargo may instead use pipelines or land transport, but those are not direct substitutes for every shipment.

The key problem is time. A vessel taking a much longer route remains occupied for more days before it can load again. A ship that once completed several shorter trips may complete fewer long ones. The same physical fleet therefore provides less transport capacity.

That reduced capacity matters when demand remains strong. Customers compete for fewer available ships, pushing freight rates higher. The article says Hormuz disruption reduced available vessels, while insecurity drove costs upward. Those higher rates helped shipping companies and tanker operators produce record profits.

VLCC stands for Very Large Crude Carrier. It is a giant tanker designed to move crude oil in bulk. The article identifies a VLCC as a ship capable of carrying two million barrels, making it one of the most important vessels for major oil routes.

Its large cargo capacity spreads a voyage’s costs across an enormous shipment. A VLCC can therefore move huge quantities between distant production and consumption centers. The article cites a rate above $770,000 per day for transporting two million barrels from West Africa to China in mid-October.

These tankers become especially valuable when routes lengthen and vessels become scarce. Each ship carries more oil, but it is also tied up longer. Frontline operates 38 VLCC supertankers, alongside Suezmax and Aframax vessels. Its second-quarter profit reached $659.2 million.

Several shipping companies are benefiting from higher rates, but oil-tanker operators show the sharpest gains. Frontline, the world’s fifth-largest oil-tanker company, reported $659.2 million in second-quarter profits. DHT Holdings reported record profits of $198.3 million.

Maersk also benefited from the stronger market. It reported attributable net income of $1.3 billion in the second quarter, up 116% year over year. Its container fleet has a 13.6% market share, making it the world’s second-largest container carrier fleet. Maersk shares rose 60% during the year.

Investors also backed the sector. Frontline shares rose 170%, while the Breakwave Tanker Shipping ETF surged 4,750%. Trafigura took its supertanker division, Volare Shipping, public. The article says Volare made a discreet start on the Oslo Stock Exchange.

Shipping prices reflect the balance between available vessel capacity and demand for transport. If many ships are available, carriers compete for cargo and rates tend to weaken. If fewer ships are available while companies still need to move goods or oil, customers compete for limited space.

The article gives Hormuz as a clear example. Conflict forced ships onto longer routes and reduced the number of available vessels. Longer journeys also keep each ship occupied for more days. The fleet can therefore carry fewer loads over the same period. At the same time, energy still needs to reach buyers.

This imbalance pushes rates higher. Petroleum shipping costs multiplied tenfold during the year, and VLCC rates exceeded $770,000 per day on one route. After paying crew, maintenance, and food, owners retain a large margin. That margin has driven record corporate profits.