# Shipping and logistics — sector playbook

Use this when: the company owns, operates or brokers the physical movement of goods — crude and product tankers, dry bulk, container liners and container tonnage providers, gas carriers (LNG/LPG), offshore support vessels, ports and terminals, and land-side logistics (freight forwarding, express parcel, contract logistics, rail container operation, warehousing). India: Great Eastern Shipping, Shipping Corporation of India, Seamec, Adani Ports, JSW Infrastructure, Gujarat Pipavav, Concor, Allcargo, TCI, TCI Express, Blue Dart, Delhivery, Mahindra Logistics, Gateway Distriparks, Aegis Logistics. Global: Frontline, DHT, International Seaways, Scorpio, Torm, Hafnia, Star Bulk, Golden Ocean, Genco, Maersk, Hapag-Lloyd, ZIM, Danaos, Costamare, Global Ship Lease, Flex LNG, BW LPG, DP World, ICTSI, DSV, Kuehne+Nagel, Expeditors, C.H. Robinson, GXO, UPS, FedEx.

Four facts govern everything below. Freight rates are a **volatile spot price** the company does not set, so a single year's earnings carries almost no information about earning power. Ships and terminals are **long-lived, tradeable, finite-life assets** whose market value moves with the rate cycle, so book equity and reported profit both diverge violently from economic value. Supply is **known three years in advance** (the orderbook) while demand is not, which makes this one of the few sectors where the forward supply curve is observable and therefore the dominant analytical edge. And the reporting conventions differ so much across sub-sectors — voyage-charter gross revenue, forwarder pass-through revenue, tonnage-tax near-zero tax rates, concession intangibles — that headline margins and P/E are not comparable even between two companies in the same index.

Decide the sub-sector before anything else. An **asset-owning spot shipowner**, a **charter-backed tonnage provider**, a **liner operator**, a **port concessionaire** and an **asset-light freight forwarder** are five different businesses that happen to share the word "logistics". Applying one sub-sector's metric set to another is the most common category error here, and sections below flag where they diverge.

## Contents

- [Why the generic ratio set fails here](#why-the-generic-ratio-set-fails-here)
- [The metrics that actually matter](#the-metrics-that-actually-matter)
- [How to value companies in this sector](#how-to-value-companies-in-this-sector)
- [Peer set construction](#peer-set-construction)
- [Sector-specific red flags](#sector-specific-red-flags)
- [Cycle and structural context](#cycle-and-structural-context)
- [India vs global notes](#india-vs-global-notes)
- [Checklist](#checklist)

## Why the generic ratio set fails here

**OPM and revenue growth — undefined across sub-sectors, and mis-signed within them.** Under a **voyage charter** the owner pays bunkers, port charges and canal dues out of freight, so reported revenue rises and falls with the *fuel price* with no change in economics; under a **time charter** the charterer pays them and revenue is a clean daily hire. The same vessel earning the same money reports revenue that differs by 40–60% depending on charter type, and OPM differs by more. A **freight forwarder** books gross freight billed to the customer as revenue and purchased transportation as cost, so a world-class forwarder runs a 3–5% "OPM" on gross revenue and a 30%+ margin on net revenue — the two look like different industries and are the same company. Never rank shipping or forwarding names on OPM. Restate to **TCE per day** for shipowners, **net revenue / gross profit** for forwarders, and **EBITDA per TEU or per tonne** for terminals.

**P/E — inverted and actively dangerous, twice over.** First, the normal cyclical inversion: freight cyclicals print their lowest P/E at the peak on peak earnings and a negative P/E at the trough, so a low-P/E screen systematically buys the top. Second, and specific to shipping, reported net income is contaminated by **gains on vessel sales** and, under IFRS and Ind-AS, by **impairment reversals** — both of which are asset-value events, not operating results, and both of which arrive precisely when the cycle has already turned up. A shipowner can report record EPS in a year of mediocre TCE purely by selling two old ships bought at the trough.

**EV/EBITDA — structurally understates the cost of the business.** EBITDA for a shipowner excludes three real, mandatory, cash costs: **drydocking and special survey capex** (every 2.5 and 5 years, typically 15–30 off-hire days and a seven-figure bill per vessel, higher with a ballast water treatment retrofit), **debt amortisation** on asset-backed loans that must be repaid on a bank schedule regardless of the cycle, and the fact that the asset itself is **consumed over 20–25 years** to a scrap value. A 2.5x EV/EBITDA at a rate peak is not cheap; it is a warning that the market has correctly identified the earnings as non-recurring. IFRS 16 compounds the problem: since 2019 charter-in commitments sit on balance sheet, inflating both EV and EBITDA, so pre- and post-2019 multiples are not comparable, and a liner that charters in half its fleet is not comparable to one that owns it.

**D/E and P/B — measured against the wrong number.** Book equity is historic cost less depreciation. A fleet bought at the 2016–17 trough may be worth two or three times book; a fleet ordered at a 2007–08 or 2021–22 peak may be worth half. Both the numerator and the denominator of D/E are therefore fiction. The lender does not care about D/E either — asset-backed shipping loans are covenanted on **loan-to-value against broker market values** and on minimum liquidity, and it is an LTV breach, not a D/E ratio, that triggers a cash sweep or forced sale. Use net LTV on market values and cash breakeven per day.

**ROCE and ROE — flattered by the same accounting that destroys P/B.** A trough-bought fleet sitting at low historic cost generates a spectacular ROCE at a rate peak that says nothing about the return on capital an investor would earn buying at today's asset prices. Worse, a prior impairment shrinks the capital base and mechanically raises subsequent ROCE — the write-down reads as an improvement. Measure return on capital **across a full cycle** (7–10 years of cumulative operating cash flow against average gross assets) or against **current market value of the fleet**, never on a single year.

**FCF — lumpy to the point of meaninglessness in any single year.** Newbuild instalments (typically 20/20/20/40 or heavily back-ended to delivery) land in blocks; vessel sales generate large positive swings; drydock schedules cluster. A shipowner can print enormous FCF for two years simply by not renewing its fleet, which is asset liquidation reported as cash generation. Read FCF only alongside fleet age, orderbook commitments and remaining drydock schedule.

**Current ratio and working capital metrics — near-useless.** Vessels and terminals are non-current by construction, so the current ratio is almost always below 1 for a healthy shipowner and tells you nothing. The real liquidity question is: does cash plus undrawn facilities cover the next twelve months of **debt amortisation + newbuild instalments + scheduled drydocks** at a *trough* TCE assumption. For forwarders the opposite distortion applies — receivables and payables are enormous relative to net revenue, so a forwarder's balance sheet swells and shrinks with freight rates without any change in the business.

**Depreciation policy is a discretionary earnings lever.** Useful life (25 vs 30 years) and assumed residual scrap value (a per-lightweight-tonne assumption) are both management estimates, and both move EPS materially without any economic change. Always read the accounting policy note and normalise before comparing EPS or P/E across shipowners.

**Tax rates are not comparable.** Most shipowning is under a **tonnage tax** regime (India Sections 115V–115VP of the Income Tax Act; also Greece, Norway, UK, Singapore) where tax is a notional charge on net tonnage, not on profit — effective tax rates near zero. Logistics and port companies pay full corporate tax. Comparing a shipowner's P/E to a logistics company's P/E without adjusting for a 25–30 percentage-point tax differential is a standing error; compare on EV/EBITDA or on post-tax cash flow.

## The metrics that actually matter

Ranges are **indicative only**. They vary by vessel class, sub-sector, geography, cycle position and period, and any of them can be wrong for a specific company in a specific year. Comparison against a tight peer set at the *same point in the cycle*, and against the company's own 7–10 year history, overrides every absolute band below. Metrics marked (S) apply to shipowners, (P) to ports and terminals, (L) to land-side logistics.

| Metric | Definition / how to compute | Indicative healthy range | Why it matters |
|---|---|---|---|
| **TCE per day, by vessel class** (S) | (Voyage revenue − voyage expenses: bunkers, port charges, canal dues, brokerage) ÷ revenue-earning days. Report separately for each class (VLCC, Suezmax, Aframax/LR2, MR, Capesize, Kamsarmax, Ultramax, Handysize, each container size band, LNG, VLGC). Compare against the Baltic route benchmarks (BDI/BCI/BPI/BSI, TD3C, TC2) and against peers' same-class TCE for the same quarter. | Class-specific and cycle-specific. Indicatively: mid-cycle VLCC roughly $30–40k/day, Capesize $20–25k/day, MR product $18–25k/day — with troughs below opex and peaks at multiples of these. The test is *relative*: a persistent discount to the class benchmark or to peers signals inferior commercial management, an older or less fuel-efficient ship, or poor positioning. | This is the entire revenue line of a shipowner reduced to one comparable number, and it is the only figure that neutralises voyage-vs-time-charter reporting and bunker price movement. Nothing else about a shipowner can be interpreted until TCE is on the table. |
| **Cash breakeven TCE per day** (S) | Daily vessel opex + G&A per vessel-day + net interest + scheduled debt amortisation + drydock/special-survey accrual, all per operating day. Compute per vessel class and for the fleet. | Depends on leverage and age. Indicatively a modern, moderately levered bulker $10–14k/day and a VLCC $22–28k/day; a low-leverage owner can be $5–8k/day lower. The critical fact is the **gap between breakeven and mid-cycle TCE** — the wider, the more cycles the company survives. | This is the survival number. Everything about the equity — whether it can pay a dividend, whether it must issue shares at the bottom, whether the banks take control — follows from where breakeven sits relative to the spot rate. Two owners of identical ships can have opposite outcomes in the same market purely on breakeven. |
| **Daily vessel operating expense (opex) per ship-day** (S) | Crew wages, lubricants, stores and spares, insurance (H&M and P&I), routine repairs and maintenance, management fee — excluding voyage costs, drydock capex, depreciation and finance costs. Per ship per calendar day. | Indicatively Handysize/Supramax $5,500–7,000; Capesize $6,500–8,000; MR $7,000–8,000; VLCC $8,000–10,000; LNG carrier $15,000–20,000. Should be flat to modestly inflationary; a step-up signals an ageing fleet, deferred maintenance catching up, or crew-cost inflation. | This is the only cost line genuinely under management control, and it is where scale and in-house technical management earn their keep. It is also a quality tell: an opex materially *below* peers on an old fleet usually means deferred maintenance, which surfaces later as off-hire and detentions. |
| **Fleet utilisation, off-hire and drydock days** (S) | Revenue-earning days ÷ available calendar days. Split scheduled off-hire (drydock, special survey, retrofit) from unscheduled (breakdown, detention, waiting for employment). | Ex-drydock utilisation above 98–99%; total commercial utilisation typically 95%+ for a well-run fleet. Special survey every 5 years plus an intermediate at 2.5, indicatively 15–30 off-hire days each. | Off-hire is revenue lost at zero marginal saving on opex, so it flows straight through to the bottom line. Rising *unscheduled* off-hire is the earliest hard evidence of a deteriorating fleet, and it precedes the maintenance capex it implies by several quarters. Drydock scheduling also explains quarter-on-quarter earnings swings that have nothing to do with the market. |
| **Fleet age, composition and eco/compliance profile** (S) | Average age weighted by dwt/TEU; age distribution (not just the mean); vessel class mix; share of "eco" fuel-efficient designs vs first-generation tonnage; scrubber-fitted share; dual-fuel capability; ice class or other niche specification. | Fleet average age below the world-fleet class average is a competitive position; above 15 years for a bulker or tanker means rising opex, worse CII ratings and approaching scrap. Beware the average — a fleet averaging 10 years may be five 2-year-old and five 18-year-old ships, which is a completely different asset. | Age drives opex, fuel consumption, charterer acceptance (oil majors vet tankers and increasingly refuse older tonnage), residual value and the size of the compliance capex bill. Composition determines *which* cycle you are exposed to; a "diversified" owner is often exposed to two cycles badly rather than one well. |
| **Orderbook-to-fleet ratio (sector) and own newbuild commitments** (S) | Sector: total tonnage on order ÷ existing fleet, in dwt or TEU, for the specific vessel class — from Clarksons/broker data, not company disclosure. Company: contracted newbuildings, yard, delivery dates, contract price, and remaining instalments as a share of liquidity and market cap. | Sector orderbook below ~10% of fleet is supportive; 15–20% is a caution; above 25–30% for a class points to a multi-year oversupply. Historic extremes have approached 50%+ of fleet, which produced a decade-long hangover. | This is the single highest-information number in the sector and the reason shipping is analysable at all: because ships take 2–3 years to build, supply for the next three years is already known while demand is not. Company-level, ordering at peak newbuild prices is the classic mechanism by which shipowners destroy the cash the cycle just handed them. |
| **Net fleet supply growth vs ton-mile demand growth** (S) | Deliveries − demolitions ± conversions, as % of existing fleet, for the specific class; against estimated ton-mile demand growth (tonnes × average voyage distance), not tonnage demand. Add slippage (non-delivery) and any effective supply absorbed by congestion, slow steaming or sanctions-trade inefficiency. | Demand growth exceeding supply growth is the necessary condition for a rate upcycle; the size of the gap sets its violence. Because utilisation is convex, a 2-percentage-point gap can double or halve rates. | Freight rates are set by the marginal ton of capacity, so small supply-demand gaps produce enormous rate moves. Ton-miles, not tonnes, is the correct demand unit — route lengthening (Cape of Good Hope routing instead of Suez, Russian crude to Asia instead of Europe, Panama Canal draught restrictions) creates real demand without a single extra tonne shipped. |
| **Scrapping / demolition rate and scrap economics** (S) | Demolition tonnage as % of fleet, average age at scrapping, and the prevailing demolition price ($/lightweight tonne at Alang, Chattogram, Gadani) against the vessel's carrying value. Check whether the company recycles under Hong Kong Convention / EU Ship Recycling Regulation approved yards. | Steady-state fleet renewal requires roughly 2–3% p.a. demolition; typical scrapping age 20–25 years and falling for tonnage that cannot meet efficiency rules. Demolition surges when TCE sits below opex for a sustained period. | Scrapping is the only mechanism that removes supply, and it is the mechanism by which a trough ends. It also sets the floor under vessel values — a ship is never worth less than its steel. For the company, scrap price versus book value tells you whether the oldest ships are a hidden asset or a pending impairment. |
| **NAV per share and price-to-NAV** (S) | Broker market value of each vessel (Clarksons, VesselsValue, Baltic panel; charter-free and, separately, charter-attached) + other assets + cash − all debt including finance leases, sale-and-leaseback obligations and newbuild commitments, ÷ shares outstanding. | Indicatively 0.5–0.7x NAV at troughs, ~1.0x mid-cycle, above 1.2–1.3x in froth. But see the valuation section: NAV is itself cyclical, so a low P/NAV at a rate peak is a trap, not a discount. | Ships are a liquid, marked-to-market asset class with an observable secondhand price, which makes NAV far more meaningful here than in almost any other sector — and makes book value correspondingly useless. P/NAV is the sector's core relative-value tool, provided you know where NAV sits in its own cycle. |
| **Net loan-to-value and liquidity vs 12-month obligations** (S) | Net debt (including finance leases, sale-and-leaseback and any Japanese operating lease with a purchase option) ÷ market value of the fleet. Separately: cash + undrawn facilities ÷ next 12 months of amortisation + newbuild instalments + drydock spend, stress-tested at trough TCE. | Net LTV below 40–50% is comfortable; above 65–70% is a covenant and refinancing risk regardless of current earnings. Liquidity should cover 12 months of obligations at a *trough* rate assumption, not the current one. | Shipping equity is wiped out by leverage in a downturn, not by operating losses. LTV covenants tighten automatically when vessel values fall — exactly when cash flow falls too — so leverage and asset values are correlated in the worst possible direction. This is the pair of numbers that separates a cyclical opportunity from a zero. |
| **Charter cover: fixed days, rate and duration** (S) | % of the next 12 and 24 months' available days already fixed on time charter or COA, the average fixed rate, remaining duration, and counterparty identity and credit. Compare fixed rate against current spot and against cash breakeven. | No universal "right" level — it is a stated strategy, not a virtue. Judge it by: does contracted revenue cover cash breakeven (downside protected), and was the cover taken at a good point in the cycle? High cover fixed at a trough is value destruction; high cover fixed near a peak is skill. | Charter cover converts a commodity bet into a bond with a residual, and determines how much of the next upcycle the shareholder actually captures. A company presenting "high contract coverage" as unambiguous quality is telling you nothing until you know the rate. Counterparty matters too — a fixed charter is worth only as much as the charterer's balance sheet, as multiple liner failures have demonstrated. |
| **Operating leverage: EBITDA sensitivity per $1,000/day of TCE** (S) | Annual EBITDA change from a $1,000/day move in TCE = $1,000 × operating days × spot-exposed fleet share. Express as a % of current market cap. | Report it as computed, not against a band. For a highly spot-exposed owner, $1,000/day can be several percent of market cap in annual EBITDA — this is the number that explains the equity's volatility. | It reframes the entire investment case in the only variable that matters and makes cross-company comparison honest. Two owners with the same fleet can have three-fold different sensitivity purely through charter cover and leverage. It is also the fastest sanity check on a broker's target price. |
| **Environmental compliance position and cost per day** (S) | CII rating distribution across the fleet (A–E), EEXI compliance status and any engine power limitation, ballast water treatment retrofit status and remaining cost, EU ETS allowance cost and FuelEU Maritime penalty exposure per voyage day for EU-touching trades, and whether these are contractually passed to charterers. | Fleet skewed to CII A–C with a credible path to hold ratings as thresholds tighten annually. Retrofit and allowance costs should be quantified by the company; a company that cannot quantify them has not modelled them. | Environmental rules are now a direct cash cost and, more importantly, a *supply-side* mechanism: slower steaming to hold a CII rating removes effective capacity, and non-compliant tonnage becomes uncharterable before it becomes unscrappable. The pass-through clause is the crux — whether the owner or charterer bears ETS and FuelEU cost decides whose margin moves. |
| **Terminal throughput, realisation and EBITDA per unit** (P) | Cargo volume in TEU (containers) and MMT (bulk/liquid), split by cargo type; revenue per TEU / per tonne; EBITDA per TEU / per tonne; capacity utilisation against rated capacity; berth productivity (moves per crane-hour, vessel turnaround time). | Terminal EBITDA margins are structurally high — indicatively 45–65%, and higher for large Indian port operators. Utilisation above 70–80% supports pricing; sustained above 90% means capacity constraint and capex. Realisation per TEU should be stable or rising in real terms. | Ports are fixed-cost infrastructure, so incremental volume drops through at very high margin and the operating leverage runs both ways. Realisation per unit separates genuine pricing power from volume bought with discounts — a common way terminal operators flatter growth. Cargo mix matters more than total volume: liquid and specialised cargo typically earn multiples of the per-tonne margin of bulk coal. |
| **Remaining concession life, revenue share and minimum guarantees** (P) | Years remaining on each concession, renewal terms and probability, royalty or revenue-share percentage payable to the port authority (and its escalation), minimum guaranteed throughput commitments and any shortfall penalties, and the handover condition of assets at expiry. | Weighted-average remaining concession life well above the asset depreciation period; revenue share that does not escalate faster than realisation. A concession with under 10 years remaining and no renewal clarity is a melting ice cube regardless of current EBITDA. | A concession is a finite-life asset with a terminal value of approximately zero, so a perpetuity-based valuation or an EV/EBITDA multiple borrowed from freehold infrastructure overstates it. Escalating revenue share is a silent margin compressor that does not appear until it bites, and minimum guaranteed throughput turns a volume shortfall into a fixed cash outflow. |
| **Logistics network density and cost per shipment** (L) | Cost per shipment or per parcel (total network cost ÷ shipments), revenue per shipment (yield), shipments per route or per hub, drop density (deliveries per stop or per km), first-attempt delivery rate, linehaul load factor / vehicle fill, warehouse occupancy and revenue per sq ft, and sortation automation share. | Cost per shipment should fall as volume grows — that *is* the business model. Yield per shipment falling faster than cost per shipment is the failure mode. Load factors above 85–90% and first-attempt delivery above 90% indicate a mature network. | Land logistics economics are almost entirely a density problem: the same truck, hub and route serving more shipments has structurally lower unit cost, which is why the largest network in a lane usually has the best margin and why sub-scale entrants cannot price their way in. This pair of numbers, not OPM, tells you whether a logistics company is compounding an advantage or buying volume. |
| **Net revenue (gross profit) and conversion ratio** (L) | For forwarders and brokers: net revenue = gross revenue − purchased transportation. Conversion ratio = EBIT ÷ net revenue. Track net revenue *per shipment* and volume in TEU/tonnes separately from gross revenue. | Forwarder net revenue margin indicatively 20–30% of gross; conversion ratio 25–40%, with best-in-class asset-light operators materially higher. Asset-heavy contract logistics and trucking run lower conversion but on a larger asset base. | Gross revenue for a forwarder is a pass-through that inflates and deflates with freight rates — it can double in a rate spike with no change in volume or profit. Net revenue is the real topline and the only basis on which forwarders can be compared to each other or across time. Conversion ratio is the cleanest measure of forwarder productivity and the metric management is usually judged on internally. |

## How to value companies in this sector

The governing rule: **never apply a multiple to trailing earnings**. Normalise to mid-cycle, or value the assets directly.

**Asset-owning shipowners — NAV is the anchor, mid-cycle EV/EBITDA the cross-check.**
- **P/NAV** is the primary tool. Build NAV from broker charter-free vessel values, add contracted charter value separately where a ship is fixed above or below market, subtract *all* debt-like items including sale-and-leaseback and remaining newbuild instalments.
- The critical subtlety: **NAV is itself cyclical**, because vessel values track rates. Buying at 0.5x NAV at a rate peak can lose more money than buying at 1.1x NAV at a trough, because the NAV halves. Always state where vessel values sit relative to (a) newbuilding parity, (b) their own 10-year range, and (c) scrap value. Buying near scrap-adjusted asset values with a low orderbook is the sector's highest-probability setup; buying a "discount to NAV" when values are at decade highs is not.
- **EV/EBITDA on normalised mid-cycle TCE**, not trailing. Indicatively 4–7x mid-cycle for tankers and dry bulk; a 2–3x on peak earnings is a signal of unsustainability, not value. Add back nothing for drydock — treat it as capex that must be funded.
- **NAV-adjusted DCF** for a fleet with meaningful charter cover: discount contracted cash flows at a low rate (it is a credit exposure), then value residual open days at mid-cycle TCE and terminate at the scrap value on the vessel's expected demolition date. Never use a perpetuity growth model on a ship.
- **Replacement cost / newbuild parity**: compare implied value per dwt or per TEU in the share price against current newbuilding prices. When the equity market values ships far below the cost of building them, no rational owner orders — which is itself the mechanism that ends the downcycle.
- **Do not use**: trailing P/E, P/B, EV/Sales, or dividend yield as a valuation input. Variable-dividend spot owners pay out peak-cycle cash; that "yield" is partly return of capital and disappears entirely at the trough.

**Charter-backed tonnage providers (container lessors, long-term LNG/LPG charters)** are contract businesses, not spot cyclicals. Value on **contracted revenue backlog** (total contracted EBITDA, weighted average remaining charter duration, counterparty credit) plus a residual value for the vessel at charter expiry, discounted. EV/EBITDA is defensible here because EBITDA is contracted. The two risks to price are counterparty default and re-chartering risk at expiry — not the spot rate.

**Liner operators (container lines)** are the most extreme cyclicals in the sector: fixed-cost networks with alliance-determined capacity, capable of swinging from a 50%+ EBIT margin to a loss within four quarters. Value on **mid-cycle EBIT with an explicit assumption about freight rate normalisation**, cross-checked against net cash — several liners have traded below net cash after a peak, which is the market pricing the cash burn to come. Do not annualise a spike quarter.

**Ports and terminals** are infrastructure with a finite life. Use **DCF over the remaining concession term with a terminal value at or near zero** (or the contractual handover compensation), and **EV/EBITDA** as a cross-check — indicatively 10–16x for long-dated, well-located concessions, lower where concession life is short or cargo is single-commodity. **EV per TEU of installed capacity** is a useful sanity check against greenfield build cost. Do not use a perpetuity DCF, and do not apply a listed-utility multiple to a 12-year concession.

**Land logistics** is a service business and tolerates conventional multiples better than shipping does, with adjustments. Asset-light forwarders and brokers: **EV/net revenue (gross profit)** and **EV/EBIT**, never EV/gross revenue. Express parcel and contract logistics: **EV/EBITDA** and **EV/EBIT** with lease obligations fully in EV (post-IFRS 16 EBITDA is not comparable to pre-2019). P/E is usable for mature, full-tax logistics names but not for anything with a freight-rate-linked revenue line. For loss-making network builders, value on a path to target cost-per-shipment at a stated volume — and demand that management state that volume.

**Cross-sub-sector**: never compare P/E across a tonnage-tax shipowner and a full-tax logistics company. Move to EV/EBITDA or post-tax free cash flow.

## Peer set construction

A valid comparable in this sector shares **the same asset, the same contract structure, and the same cycle**. Get any one wrong and the comparison is noise.

- **Split by vessel class, not by "shipping".** VLCCs, MRs, Capesizes and Handysizes have different demand drivers (crude trade vs refined product arbitrage vs iron ore and coal vs minor bulks), different orderbooks and different rate cycles. A crude tanker and a dry bulk carrier have repeatedly moved in opposite directions in the same year.
- **Split tankers into crude and product.** Product tanker demand is driven by refinery dislocation and arbitrage, which can be strong precisely when crude tanker demand is weak.
- **Never mix spot-exposed owners with charter-backed owners.** They have different betas, different valuation methods and different downside. A blended "container shipping" peer set containing both a liner operator and a tonnage provider is analytically meaningless.
- **Never mix asset-owners with asset-light forwarders or brokers.** Different capital intensity, different margin denominators, different cycle sensitivity (forwarders often earn *more* in a rate spike on spread, then normalise).
- **Ports: split gateway from transhipment, and landlord from operator.** A transhipment hub is exposed to alliance routing decisions and can lose half its volume to a competing hub; a gateway serves captive hinterland demand. A landlord port earning lease and royalty income is a different risk profile from an operator running cranes and labour.
- **Land logistics: split express parcel, contract logistics/warehousing, freight forwarding, full-truckload/less-than-truckload trucking, and rail container operation.** Margin structures range from low-single-digit to mid-teens with no read-across.
- **Adjust for tax regime before any earnings-based comparison.** Tonnage tax vs full corporate tax is a 25–30 point difference in effective rate.
- **Adjust for fleet age and specification.** A 5-year-old eco fleet and a 15-year-old non-eco fleet in the same class are not comparables on TCE, opex or asset value.
- **Adjust for corporate structure.** Many US-listed shipowners are Marshall Islands entities with an affiliated, founder-owned technical and commercial manager, a controlling shareholder, and dual-class or preferred structures. Their reported G&A is not comparable to an internally managed peer's, and minority shareholders' claim on cash flow differs.
- **India-specific**: Great Eastern Shipping combines shipping with an offshore services segment (Greatship) on a different cycle — segment-split it before comparing to a pure shipowner. Concor's economics are dominated by the administered rail haulage charge paid to Indian Railways and by land licence fees, which are policy variables, not management variables — it is not comparable to a road-based 3PL.

## Sector-specific red flags

**Gains on vessel sales inside operating income or EBITDA.** Asset trading is a legitimate part of shipowning, but it is a balance-sheet event and must be reported separately. A company that runs disposal gains through EBITDA and then presents an EV/EBITDA multiple is overstating recurring earning power. Check the cash flow statement for proceeds from vessel sales against reported "operating" profit.

**Depreciation policy changes.** An extension of useful life from 25 to 30 years, or an increase in assumed residual scrap value per lightweight tonne, raises EPS immediately with no economic change. Read the estimates note every year; a change in either, especially in a weak year, is a deliberate earnings action.

**Impairment reversals (IFRS and Ind-AS only).** US GAAP prohibits reversing a vessel impairment; IFRS permits it. An IFRS shipowner can report a large profit swing purely from writing assets back up as vessel values recover. This is not earnings — strip it and note that peer comparison across accounting frameworks is broken by it.

**Related-party everything.** Vessels purchased from or sold to entities controlled by the founder; technical and commercial management fees paid to an affiliated manager; charters with affiliated operators; newbuild contracts placed through a related intermediary. This is endemic in listed shipping. Read the related-party note in full and ask whether an arms-length buyer would have paid that price.

**Equity issuance at the top and dilution at the bottom.** At-the-market programmes that quietly issue shares whenever the price rallies; a reverse split to maintain a listing followed by fresh dilution. Track shares outstanding over 5–10 years against NAV per share — a company whose fleet grew and whose NAV per share did not has transferred value from shareholders to itself.

**Ordering newbuilds at peak prices.** The defining capital-cycle error. High rates lift asset prices, cash-rich owners order, yards deliver three years later into a weaker market. Check newbuild contract prices against the historic newbuild price range, and against the mid-cycle TCE required to earn a return on them.

**Off-balance-sheet and quasi-debt structures.** Sale-and-leaseback with Chinese leasing houses, Japanese operating leases with purchase options, bareboat charters with balloon obligations, and non-consolidated JVs holding vessels and their debt. All are economically debt; all can leave headline net debt looking modest while true LTV is 70%+. Reconcile fleet count to balance-sheet vessels and investigate the gap.

**Backlog that is not what it seems.** Charter backlog presented at gross contracted revenue with no deduction for opex; charters to a counterparty in financial distress; charters with early-termination or rate-adjustment clauses; a backlog whose weighted average duration is dominated by one long contract while everything else rolls off next year. Ask for backlog EBITDA, by counterparty, by year.

**Deferred maintenance and drydock timing.** Pushing a special survey into the next financial year lifts current-year utilisation and earnings and creates a bill and off-hire later. A fleet with an unusually light drydock schedule this year and a heavy one next year is not a margin improvement.

**Ports: throughput bought with price, and captive group cargo.** Volume growth alongside falling realisation per TEU or per tonne is discounting, not share gain. Where the terminal's parent or group companies are also its largest cargo owners, a large share of "third-party validated" volume is intra-group — check concentration and the pricing of related-party cargo. Also watch aggressive capitalisation and long amortisation of concession intangibles, minimum guaranteed throughput shortfalls, and escalating revenue-share terms that compress margin on a fixed schedule.

**Logistics: gross revenue growth that is freight-rate inflation.** A forwarder's revenue doubling in a rate spike is not growth; volume in TEU or tonnes and net revenue per shipment tell you what actually happened. Also watch capitalised network build costs, rising unbilled revenue, growing receivables from franchise or pickup partners, and yield per shipment declining while volume grows — the standard signature of buying share below cost.

**India-specific.** Promoter share pledging, especially in port and infrastructure groups where the pledged security is itself cyclical. Large intra-group receivables, loans and guarantees to unlisted promoter entities — read the Ind-AS 24 related-party note and the LODR Regulation 23 disclosures, not the press release. Auditor resignations or qualifications, and CARO 2020 clauses on related-party compliance and utilisation of borrowings. Also check whether a concession is held in a subsidiary with minority partners, so consolidated EBITDA overstates the parent's economic share.

## Cycle and structural context

**The capital cycle is the sector's master narrative.** High rates generate cash and lift secondhand and newbuild asset prices; owners order; yards deliver 2–3 years later; supply overshoots; rates collapse below cash breakeven; ordering stops; the fleet ages; demolition exceeds delivery; supply tightens; the cycle restarts. This has repeated for over a century. The analytically decisive point is the **asymmetry of information about supply and demand**: the orderbook tells you supply three years out with high confidence, while demand is unforecastable. Therefore anchor the thesis on supply, and treat demand forecasts as scenario inputs rather than conclusions.

**Where you are in the cycle changes which metrics matter.** Near a trough — asset values near scrap-adjusted floors, orderbook low, demolition high, owners loss-making — the questions are balance-sheet survival (LTV, liquidity vs 12-month obligations, cash breakeven) and asset value downside. Near a peak — record TCE, asset values at decade highs, orderbook rising, owners announcing newbuilds and special dividends — the questions are capital allocation discipline and how much of the reported earnings is non-recurring. A "cheap" 3x EV/EBITDA and 40% dividend yield at a peak is the market pricing the mean reversion, not a mispricing.

**Effective supply is not the same as nominal supply.** Port congestion, slow steaming (increasingly driven by CII compliance), canal restrictions, sanctions-driven inefficiency in a parallel "shadow" tanker fleet, and route lengthening all absorb capacity without changing the fleet count. Conversely, congestion unwinding releases a wave of effective supply and can crush rates without a single delivery. Always separate nominal fleet growth from effective capacity.

**Route length is a demand variable.** Red Sea avoidance routing Asia–Europe traffic around the Cape of Good Hope materially lengthens voyages; Russian crude and product flows redirected to Asia lengthened tanker ton-miles substantially; Panama Canal draught restrictions reroute and lengthen. These are demand shocks created by geopolitics, they can reverse abruptly, and a thesis resting on them should say so explicitly.

**Regulation is now a supply mechanism, not just a cost.** The sulphur cap changed fuel economics and created a scrubber-fitted vs non-scrubber spread. Ballast water treatment retrofit costs pushed marginal old tonnage to scrap. EEXI and the annually tightening CII regime force speed reduction, which removes effective capacity from the oldest, least efficient ships first. The EU Emissions Trading System now covers maritime emissions on EU-touching voyages on a phased basis, and FuelEU Maritime imposes GHG intensity limits with penalties. A global IMO framework for greenhouse gas pricing and fuel intensity has been under negotiation with its adoption timetable repeatedly contested — **verify the current status and phase-in dates before modelling; do not assume the position as of any prior date still holds.** The investable consequence is fuel-choice risk: an owner ordering a conventional-fuel ship today may own a stranded asset, and an owner ordering the wrong alternative fuel (LNG vs methanol vs ammonia) may own an expensive one.

**Secular demand questions by sub-sector.** Dry bulk is levered to Chinese steel and construction, and to the substitution of iron ore sources by voyage distance. Crude tankers face a long-dated but real transition risk from oil demand plateauing, partly offset by trade-route lengthening. Product tankers benefit from refinery capacity moving away from consumption centres. Containers face nearshoring and friendshoring pressure on trade intensity, and periodic alliance restructuring that reshuffles port volumes. LNG shipping is levered to a large liquefaction capacity build-out with its own delivery timing risk. Ports and land logistics are levered to trade volume, e-commerce penetration and warehousing demand, which are structurally growing but cyclically exposed.

**Shipyard capacity is the current governor on supply.** Yard consolidation reduced global newbuilding capacity, berth slots have been in demand from LNG, container and offshore orders, and newbuild prices have consequently stayed high with long delivery lead times. High newbuild prices and distant delivery dates restrain ordering, which is supportive for incumbent owners — and this constraint is what a supply thesis should be built on, verified against current yard orderbooks.

## India vs global notes

**Reporting and disclosure.** India: Ind-AS, quarterly results with limited review, figures in ₹ crore/lakh, mandatory earnings calls and investor presentations for larger names, promoter shareholding and pledge disclosed quarterly, CARO 2020 auditor reporting, related-party disclosure under Ind-AS 24 and SEBI LODR Regulation 23. Global: 10-K/10-Q for domestic US filers on EDGAR; **most US-listed shipowners are foreign private issuers filing 20-F annually** (Marshall Islands, Greek, Norwegian or Singapore domiciled), often under IFRS, with quarterly reporting voluntary rather than mandatory. This asymmetry matters: an Indian shipowner gives you four datapoints a year and a call; a Marshall Islands 20-F filer may give you one audited set plus press releases.

**Tax.** India operates a **tonnage tax regime under Sections 115V–115VP** of the Income Tax Act — an optional, long-lock-in scheme taxing notional tonnage income rather than actual profit, with conditions including a minimum transfer to a reserve for fleet acquisition and a training requirement. Effective tax rates for qualifying shipping income are consequently very low. Indian logistics and port companies pay full corporate tax (with MAT considerations where relevant). Global equivalents: Greek, Norwegian, UK, Singapore and Cyprus tonnage regimes; several US-listed owners are effectively untaxed by domicile. Never compare P/E across these without adjustment.

**Regulators and policy (India).** Directorate General of Shipping (safety, flag, seafarers) and the Ministry of Ports, Shipping and Waterways. Major ports were historically tariff-regulated by TAMP; the **Major Port Authorities Act, 2021** gave major port authorities greater tariff autonomy, while non-major ports sit under state maritime boards (Gujarat Maritime Board and equivalents) with materially more pricing freedom — this is a structural reason non-major private ports have earned higher realisations. Policy programmes (Sagarmala, Maritime India Vision, National Logistics Policy, PM Gati Shakti, dedicated freight corridors) drive capex and modal-shift assumptions that appear in company guidance; treat them as directional, not contractual. Cabotage rules and Indian-flag right of first refusal affect coastal trade competitiveness.

**Currency and functional currency.** Shipping revenue is overwhelmingly USD-denominated worldwide. An Indian shipowner reporting in INR with USD revenue and USD asset-backed debt has a partial natural hedge but a translation effect on reported earnings and book value. Check the functional currency disclosure — a company whose functional currency is USD but presentation currency is INR will show FX noise that is not economic.

**Data sources and benchmarks.** Rates and asset values come from brokers and indices, not from companies: Baltic Exchange (BDI, BCI, BPI, BSI, and tanker routes such as TD3C and TC2), Clarksons for newbuild/secondhand values and orderbooks, VesselsValue, and for containers the SCFI, Drewry WCI, Xeneta and Harpex charter indices. Indian port throughput data is published by the Indian Ports Association and by state maritime boards. Always cross-check a company's claimed TCE against the relevant benchmark for the same period.

**Structural differences to remember.** Indian listed shipping is small and PSU-influenced (Shipping Corporation of India is a disinvestment candidate with the attendant policy overhang); Indian port and logistics listings are large and group-controlled, so governance and intra-group exposure carry more weight than fleet analysis. Conversely, global listed shipping is dominated by controlled, externally managed, low-float vehicles where related-party terms and dilution history matter more than the sector cycle in determining what a minority shareholder actually earns.

## Checklist

- Identify the sub-sector first (spot shipowner / charter-backed tonnage / liner / port concession / asset-light logistics) and discard metrics that do not apply.
- Restate the topline: TCE per day per vessel class for shipowners; net revenue (gross profit) for forwarders; EBITDA per TEU or per tonne for terminals. Never rank on OPM.
- Compute cash breakeven per day (opex + G&A + interest + amortisation + drydock accrual) and state the gap to current and mid-cycle TCE.
- Pull the sector orderbook-to-fleet ratio for the specific vessel class from broker data, and the company's own newbuild commitments and remaining instalments.
- Compare net fleet supply growth against ton-mile (not tonne) demand growth, and note anything absorbing effective supply — congestion, slow steaming, route lengthening, sanctions.
- Build NAV from broker charter-free vessel values less all debt-like items; compute P/NAV and state where vessel values sit versus newbuild parity, their 10-year range, and scrap.
- Compute net LTV on market values and test 12-month liquidity against amortisation, newbuild instalments and drydocks at a *trough* rate assumption.
- Quantify charter cover: % of next 12 and 24 months fixed, at what rate versus breakeven, for how long, with which counterparty.
- Read the depreciation policy note for useful life and residual value; check for any change, and strip vessel sale gains and IFRS impairment reversals from reported earnings.
- Read the related-party note in full: manager fees, vessel purchases from affiliates, group cargo, intra-group receivables and guarantees.
- Reconcile fleet count to balance-sheet vessels; hunt sale-and-leaseback, bareboat balloons, Japanese operating leases and non-consolidated JV debt.
- Check fleet age distribution (not average), eco/scrubber/dual-fuel mix, CII rating spread, and the quantified EU ETS / FuelEU / retrofit cost per day and who bears it.
- For ports: remaining concession life, revenue share and escalation, minimum guaranteed throughput, realisation per TEU/tonne trend, cargo concentration and related-party volume share.
- For land logistics: cost per shipment versus yield per shipment over 3–5 years, load factor, drop density, and volume in units — not gross revenue growth.
- Track shares outstanding and NAV per share over 5–10 years to see whether growth accrued to shareholders or diluted them.
- Value on P/NAV and mid-cycle EV/EBITDA (shipowners), backlog DCF (charter-backed), concession-term DCF with near-zero terminal value (ports), EV/net revenue and EV/EBIT (forwarders). Never on trailing P/E, P/B, EV/gross sales, or peak dividend yield.
- Adjust for tonnage tax versus full corporate tax before any earnings-based cross-comparison.
- State explicitly where in the cycle the analysis sits, and what has to be true about supply — not demand — for the thesis to work.
