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2 Stocks Benefitting from Middle East Turmoil

Growing tensions in the Middle East have drastically raised freight rates, likely leading to meaningful revenue and earnings growth for shipping companies, and pushing their stock prices to 52-week highs.

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Rising tensions in the Middle East have recently propelled ocean shipping back into the headlines as a number of ocean carriers halted Red Sea shipping in response to military activity in the region, most notably Houthi attacks.

The closure of shipping lanes has bottlenecked what was a nascent recovery in the global supply chain following system shocks that arose during the Covid years.

This fragile recovery, coupled with longer shipping routes, increased shipping speeds and fuel consumption, is resulting in higher prices for both shipping providers and the goods they carry, drastically improving providers’ revenue and earnings outlook.

One indication of how much freight rates have increased since last year can be seen in the World Container Index (WCI) provided by the supply chain advisory firm Drewry. The latest Drewry composite index shows that global freight rates are over $3,000 per 40-foot container. And while this is down from the multi-year highs in January, it’s still more than double the average rate of $1,420 that prevailed in pre-pandemic 2019!


Unsurprisingly, especially given historically high freight rates, ocean shipping stocks are outperforming other segments of the broader transportation industry.

With that said, let’s take a closer look at a couple of these shipping stocks.

2 Shipping Stocks Benefitting from the Turmoil

Star Bulk Carriers (SBLK) is the world’s largest publicly listed dry bulk carrier, operating over 120 vessels of various sizes that carry grain, iron ore, alumina, minerals and fertilizers all around the world. The company recently completed a merger with Eagle Bulk Shipping, creating a $2.8 billion dry bulk shipping giant in the process.

According to a recent investor presentation, Star Bulk is currently focused on investing in upgrading its fleet with the latest operational technologies available, with an aim at improving overall fuel consumption and further enhancing the commercial attractiveness of its entire fleet.

Management said the outlook for the dry bulk market remains positive “due to favorable supply dynamics, geopolitically driven inefficiencies in trade and a recovery of demand supported by large global infrastructure investment needs.” As an added attraction, the company is also actively engaged in repurchasing and retiring shares, having recently bought back 20 million shares (28% of the float!).

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Navios Maritime Partners (NMM) owns and operates dry cargo vessels in several continents, including Asia, Europe, North America and Australia. The company offers seaborne transportation services for a range of liquid and dry cargo commodities, including petroleum, chemicals, iron ore, coal, grain, fertilizer and containers.

As the world continues to experience disruption in normal trade routes due to regional conflicts ranging from Ukraine/Russia to Israel/Palestine, another factor impacting global shipping involves recent droughts that have severely limited traffic in the Panama Canal. As a result of this, what is normally a seasonally slow first quarter witnessed a “surprisingly strong” start to the year for Navios, according to management.

Going forward, Navios sees shipping giant China leveraging its export strength, along with projected world GDP growth of 3.1% for 2024, contributing to a “strong” environment for the industry for the full year. Additionally, the firm’s total contract revenue amounts to a solid $3.3 billion (mainly for tankers and container fleets), around 50% of which is expected to be earned in the next two years.

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Clif Droke is a Senior Analyst at Cabot Wealth Network. For over 20 years, he has worked as a writer, analyst and editor of several market-oriented advisory services and has written several books on technical trading in the stock market, including “Channel Buster: How to Trade the Most Profitable Chart Pattern” and “The Stock Market Cycles.”