CITIC Securities: The "Inventory Ratchet Effect" in the Oil Transportation Industry and the Cross-Period Inventory Replenishment Wave

Author｜Han Jun, Zong Feng

1. The fundamental logic of the oil transportation industry is changing, with the inventory ratchet effect becoming its core characteristic. Under the risk of geopolitical supply chain disruptions, countries are reassessing their energy security bottom line, leading to an upward shift in safety stock targets that are difficult to revert to pre-crisis levels, breaking the previous lean operation model of low inventory and high turnover.

2. Short-term export restrictions by oil-producing countries suppress freight rates, but in reality, push the available inventories of consuming countries into warning zones. Although multiple nations’ tightening of crude oil exports causes temporary freight rate adjustments, it continues to drive the available inventories of overseas oil-consuming countries toward safety alert levels.

3. Anxiety over supply chain disruptions fuels additional inventory replenishment demands, with concentrated releases acting as the main catalyst for rising freight rates. Besides routine replenishment, overseas end-users will also build high-level safety buffers, and the combined demand for inventory replenishment—if released in policy loosening phases or peak seasons—will significantly drive up oil shipping freight rates.

The oil transportation industry is undergoing a major transformation in its underlying logic, primarily manifested as the emergence of the “inventory ratchet effect.” Previously, the industry widely adopted a lean operation model of low inventories and high turnover. However, under extreme risks such as the Strait of Hormuz blockade and other supply chain disruptions, countries are fundamentally reassessing their energy security thresholds. Similar to a ratchet mechanism, geopolitical panic-driven increases in energy security inventory targets are unlikely to revert to pre-crisis levels.

Recently, many oil-producing countries have frequently tightened crude oil export policies. In the short term, this suppresses shipping freight, causing temporary rate adjustments, but in fact, it continues to push the available inventories of overseas crude oil consumers into safety warning zones.

Supply chain disruption fears generate additional inventory replenishment needs, with concentrated releases serving as the key catalyst for rising freight rates. Under strong expectations of supply chain interruption, overseas crude oil terminals will not only perform routine replenishment for daily consumption but also increase investments to build high-level safety buffers. The combined demand for routine and safety inventories—if released amid policy easing or peak seasons—will become the core driver for a significant upward shift in oil shipping freight rates.

Looking ahead: freight rate pressure is not from new supply but from the reopening of the Red Sea

(1) Global industrial transfer remains a key variable, with the large migration from China, Japan, South Korea to Southeast Asia, Africa, the Middle East, and South America causing differentiated freight rate trends.

In the macro narrative of the global container shipping market, industrial transfer is no longer just a simple “factory relocation,” but a profound restructuring of supply chains, becoming a critical variable influencing future freight rate trends. The “lengthening” of supply chains has fundamentally changed trade flows. The traditional point-to-point model of “East Asian manufacturing to Western consumer markets” is gradually evolving into a multi-node relay pattern: “China/Japan/South Korea (R&D, core components, intermediate products) — Southeast Asia/Mexico (assembly and processing) — global markets (final consumption).” This shift has led to explosive growth in intermediate goods trade. For the shipping industry, this means that demand for transporting finished goods is being broken down into more complex regional intra-area transportation needs, greatly supporting the resilience of Asian regional routes’ freight rates.

The rise of the “Global South” is reshaping the value of non-mainline routes. As industries spill over from East Asia to Africa, the Middle East, and South America, these regions are transforming from mere resource exporters into emerging manufacturing bases and consumer markets. Routes to the Middle East, Latin America, and Africa benefit from infrastructure investments (such as Belt and Road projects) and consumption upgrades. China’s exports to these regions are no longer just daily necessities but include higher-value-added equipment, photovoltaic modules, and new energy vehicles.

This migration causes significant “structural differentiation” in freight rates. In the future, mainline routes between Europe and America will become more mature, caught in “stock competition,” with freight rate fluctuations mainly suppressed by macroeconomic factors and new vessel deliveries, likely exhibiting low volatility and low margins; whereas North-South and emerging market routes, with relatively lagging port infrastructure, restrained capacity deployment, and faster demand growth than supply, will be more prone to high freight premiums caused by congestion or demand surges.

(2) Container vessel deliveries will total only 1.5 million TEU in 2026, with a nominal growth rate of about 3.7%

In 2026, global container fleet deliveries are expected to reach only 1.5 million TEU, the lowest in the past three years. However, the real pressure depends on whether the Red Sea can resume normal navigation. The Red Sea crisis has impacted about 10% of the container fleet’s capacity. Once the Red Sea reopens, there will be short-term port congestion, but in the medium to long term, it will exert significant pressure on freight rates. Deliveries are projected to be 3.1 million, 3.7 million, and 1.6 million TEU in 2027, 2028, and 2029 respectively, casting a shadow over the market in the coming years. Currently, about 33% of ships are over 15 years old, and 13% are over 20 years old. If the market effectively phases out ships over 20 years old within the next five years (noting that in five years, 15-year-old ships will become 20-year-old ships), the market may avoid a sharp collapse.

(3) Container port congestion will become the norm

In the post-pandemic era, we must accept a fact: port congestion is no longer a rare “black swan,” but an embedded “gray rhinoceros” in the global shipping system. Looking ahead to 2026, congestion will evolve from a single terminal operation issue to a structural norm, rooted in a deep mismatch between ship and port capacity: massive deployment of container ships coupled with insufficient port capital expenditure.

The “pulse effect” of larger ships and the “flood peak effect” of deliveries are pushing ports toward their limits. With the deployment of ultra-large container ships of 24,000 TEU, ports face not a steady flow but sudden, massive peaks. The surge in loading and unloading operations caused by single ships docking leads to yard saturation in a short period. Although quay crane efficiency has improved, yard turnover and hinterland transport bottlenecks are difficult to resolve quickly. This hardware mismatch of “big ships, small ports” ensures that operational efficiency fluctuations will become a normal state.

The new alliance “hub-and-spoke” network further amplifies the vulnerability of hub ports. The Gemini network, representing a new type of shipping network, significantly reduces direct port calls, relying heavily on transshipment hubs like Shanghai and Singapore. While this improves mainline utilization, it concentrates risks: if a hub port is halted due to weather or strikes, the chain reaction can paralyze the entire regional supply chain through the feeder network. The “bottleneck lake” phenomenon at hubs will recur repeatedly.

External factors disrupting the system are becoming long-term. Whether it’s periodic strikes by European and American port unions resisting automation or increased port closures due to extreme weather, the effective operational time of ports is continually shrinking.

Port congestion will no longer be just a capacity shortage but a systemic resilience issue. To the market, this persistent congestion acts as a form of “passive volume control,” absorbing some excess capacity but also making “service reliability” the most expensive scarce resource.

In summary, the container shipping market in 2026 faces significant downward pressure, with the reopening of the Red Sea being a decisive factor. U.S. fiscal deficits and rate-cut policies may offset some market declines, but are unlikely to sustain comfortable prices for shipping companies. Low oil prices offer a favorable opportunity for the industry, but may also justify price wars. Overall, the 2026 container shipping market will experience considerable pressure, with further segmentation of routes and long-term port congestion becoming persistent issues.

Oil shipping: gradually moving toward compliance-driven growth

The Russia-Ukraine conflict has reshaped global crude oil supply patterns. Due to restrictions on Russian oil, the EU and other countries have greatly reduced dependence on Russian oil, with Russia redirecting supplies to Asia. Meanwhile, other oil-producing countries like Brazil and the U.S. are expanding production, and some African nations have exited OPEC, gradually reducing OPEC’s share and opening more market space for others. By 2025, OPEC shifted from a strategy of production cuts to actual increases, entering a phase of substantial output growth. Although this does not necessarily mean increased maritime crude exports, actual shipping volume data since August shows a significant rise, effectively boosting crude oil tanker freight rates.

While China’s crude oil imports were weak in early 2024 and 2025, recent months have shown a stronger trend, with Q3 imports up 5% year-over-year. Steady refinery processing has also supported import growth. In 2025, average crude throughput is expected to reach about 14.8 million barrels per day, up 3% YoY, with Q3 processing up 7%. The first half of this year saw increased fuel oil and asphalt import tariffs, encouraging independent refiners to process more crude. Growing demand for petrochemical raw materials and reduced refinery maintenance in recent months—especially at state-owned plants—also support this trend.

Significant acceleration in inventory activity and increased refinery throughput have driven import demand, with China’s freight volume providing potential support for the crude oil tanker market this year. China’s crude oil inventories have increased to 110 days of supply, with strategic reserves plus commercial stocks adding 150 million barrels (worth about $10 billion). Future storage is expected to rise to 140–180 days, driven by: (1) current low oil prices providing a strategic buying window; (2) the new Energy Law effective in 2025, which mandates shared strategic reserves for state and private companies; (3) about 20–30% of oil imports from sanctioned countries, posing supply interruption risks and prompting reserves for potential crises (including geopolitical); (4) large current account surpluses providing foreign exchange for oil purchases.

Refining capacity continues to expand, projected to exceed 18 million barrels per day in 2026, supporting oil demand. Ongoing inventory buildup may sustain import levels into 2026, with state oil companies further increasing storage capacity by 169 million barrels, and falling oil prices could also provide support. China’s crude oil import volume was initially expected to grow 3% to 10.7 million barrels per day next year, but further upside remains possible.

Due to sanctions on shadow fleets by Europe and the U.S., especially since early 2025, effective shipping capacity has shrunk, pushing up freight rates and increasing seasonal resilience. Currently, about 16% of VLCCs are restricted ships, with Aframax ships closely linked to Russia accounting for 33%.

Although new ship prices have recently declined, the overall trading value of secondhand ships remains rising, correlating with recent sharp increases in charter rates. For example, a 10-year-old vessel, originally costing about $95 million in 2015, depreciated over 20 years to a book value of $47.5 million, but market value has surged to $88 million, an 85% increase.

While supply pressures in 2026 will limit freight rate growth, aging ships remain a concern, gradually pushing the rate center upward.

Specialized shipping: new export sectors drive market demand, with continued strength in niche cargo exports

By August 2025, China’s total exports of clean energy technology reached a new high, exceeding $141 billion. Europe remains China’s largest import region for clean energy products. The Middle East, Latin America, and Africa are the most promising growth areas. Due to the large size of new energy equipment, transportation is shifting from containerized to specialized cargo, especially wind turbines, energy storage cabinets, and other products.

China’s exports of wind power and engineering machinery remain prosperous. The company’s current focus on Southeast Asia, East Africa, South Africa, and South America aligns with future industrial transfer zones, with large-scale factory relocations continuously driving demand for equipment transportation and supporting stable rental rates for main vessel types.

Policy risks from changes in global liner alliance regulations

In response to soaring freight rates, the U.S. National Industrial Transportation League (NITL) and others have pressured to intervene in the antitrust exemptions of liner alliances. In the short term, there is little evidence of monopoly pricing; the EU has consistently refused intervention, believing that shippers benefit from increased service density, route coverage, and reduced transshipment. In the medium to long term, if high freight rates persist, the U.S. or EU may reconsider the regulation of global liner alliances, risking increased volatility in the container shipping market due to regulatory changes.

Risks from ongoing Russia-Ukraine conflict

The ongoing conflict severely impacts trade routes related to Europe and Russia, threatening the collapse of the global shipping system and potentially reversing globalization trends. Investors should closely monitor developments in the conflict, energy policies, and sanctions.

Sharp rise in fuel costs

Fluctuations in international crude oil prices pose a significant risk of rising fuel costs for shipping companies. Singapore, as the largest fuel oil consumer and distribution hub globally, may see geopolitical factors affecting fuel oil output, leading to substantial increases in fuel costs. Additionally, IMO regulations and national environmental policies could greatly raise fuel expenses. Historically, the 2020 global sulfur cap regulation caused major shifts in marine fuel consumption, with low-sulfur fuel oil, MGO, LNG, and other clean fuels significantly increasing shipping fuel costs and causing volatile price swings.

Han Jun: Chief analyst of global transportation and energy at CITIC Construction Investment Securities, former researcher at Shanghai International Shipping Research Center, with three years of government planning and market consulting experience, having advised or participated in over twenty decision-making projects for the Ministry of Transport, Shanghai Transport Commission, and port enterprises. Ten years of securities research in transportation, port, high-speed rail, express delivery, and logistics sectors, skilled at identifying cyclical and policy-driven investment opportunities. Ranked fifth in the 2021 New Fortune Top Analysts in Transportation.

Liang Xiao: Transportation industry analyst, Master’s degree from Nankai University, previously worked at CIMC Logistics, SF Express, and JD Logistics. Participated in drafting the “Revision Proposal for National Multimodal Transport Standards” and contributed to the 14th Five-Year Plan for transportation and logistics. Joined CITIC Securities Research Department in 2022, covering express delivery, warehousing, supply chain logistics, cross-border logistics, rail freight, and air logistics. Rich industry research experience and resources, adept at identifying and uncovering long-term company value, based in Beijing.

Zong Feng: Global energy and transportation analyst at CITIC Securities, with a focus on industry cycles, capital expenditure, and company fundamentals. Holds a double degree in finance and English from Beijing Foreign Studies University and a Master’s in International Business from Fudan University, participated in MIT summer programs. Former senior auditor at Deloitte China, involved in audits of multiple large A+H listed companies; later worked at a venture capital firm, responsible for early-stage project scouting and investment decisions. Joined Western Securities to conduct transportation industry research.

Research report title: “The ‘Inventory Ratchet Effect’ and Cross-Period Replenishment Wave in the Oil Transportation Industry”

Publication date: March 15, 2026

Published by: CITIC Securities Co., Ltd.

Analysts involved:

Han Jun SAC ID: S1440519110001

SFC ID: BRP908

Liang Xiao SAC ID: S1440524050005

Zong Feng SAC ID: S1440525120004