$ZIM - Are You Long Enough? A very important article for understanding market behavior: The supply of new vessels has increased by 6.5% annually over the past five and a half years. Almost no vessels have been scrapped. Only 300,000 TEU, less than 1% of the fleet, was scrapped during this period. Under normal conditions, at least 11% should have been scrapped. Supply grew by approximately 5% more than average demand each year, yet the shortage only became more severe. Approximately 15% of the fleet is more than 20 years old, historically the point at which vessels are scrapped. The Suez Canal is beginning to reopen. More than 50% of the traffic has already returned and has been absorbed by the shortage. A full reopening is expected to release another 3%–4% of capacity, which we believe will also be absorbed relatively easily. Conclusions: Our theory is that the need for vessels is significantly higher than the historical average of 5%. Our estimate it is closer to 8% annually because growth is not evenly distributed, requiring more vessels on the routes where demand is concentrated. Port congestion continues to worsen, creating a need for even more vessels. The physical market correctly understood the real demand for capacity, despite what the “smart” analysts were saying. Those who listened to them paid a heavy price. Hapag-Lloyd and Maersk are managed by bureaucrats rather than businesspeople capable of conducting their own independent analysis. We are probably approaching a golden age for shipping. Every available bit of capacity has been absorbed, and there is nowhere left to find additional vessels. The industry must begin scrapping more ships. P.S. Notice that ZIM’s vessels chartered under long-term agreements are effectively owned by the company. Here is why: ZIM has an option to purchase them at the end of the charter period at a bargain price, say approximately $20 million per vessel. Discounted to today, with roughly 12 years remaining, the present value of that purchase option is only around $5–7 million per vessel. Therefore, these vessels can effectively be treated as owned. And if an unforeseen catastrophe occurs, the right not to exercise the purchase option would itself be worth several million dollars, meaning the effective exercise price is close to zero.