Highlights

• Recent geopolitical events are greatly undermining seafarers’ human rights, blurring the distinction between a shipping route and a war zone. At the same time, markets remain bullish on global tanker stocks as a geopolitical hedge. We are studying the elusive global shipping ESG risk (human rights), which could potentially have a significant price impact on global shipping stocks, which are now being perceived as a defensive geopolitical hedge.
   
• As the global seafarer shortage coincides with a worsening retention crisis driven by various human rights issues, we believe this could become a materiality topic extending beyond shipping and across multiple sectors. Given that seafarers enable almost 90% of global trade, the shortage could indirectly increase the cost of doing business for sectors that depend on global trade. Sectors that may face materiality impact are shore-based ecosystems like ports and yards, and also financials (especially marine insurers). 
  
   

Analysis

• Shipping sector proving to be a defensive hedge for investors. According to Lloyd’s List, global tanker stocks have proved again to be a worthy hedge for investors, even as geopolitical unrest has been a headwind for the broader market. Stocks in the crude tanker and product tanker segments have gained 15% and 13% respectively in the past month. Some stocks like International Seaways and Okeanis outperformed in gains relative to the start of the Hormuz crisis (+47-50%), and across a one-year timeframe (+123-130%).
   
• Crude tanker fundamentals are expected to hold strong on tonne-mile demand even if the war ends today. The ongoing US-Iran conflict/Hormuz disruption 3-4 months ago are some factors supporting Very Large Crude Carriers (VLCC) daily spot rates, which have been hovering at US$100,000 for nine straight months. Despite the recent correction, tanker rates are still reflecting multi-cycle highs. This is because even if the Strait were to open today, countries would need to restock depleted inventories and diversify their supply sources. Some guided the process may take as long as two years. 
   
• However, we are studying if the elusive global shipping ESG risk (human rights) will be a material pricing impact, just as the distinction between a shipping route and a war zone is disappearing. After more than four years of war around the Black Sea, seafarers - which are some of the toughest workforce globally – have accepted a degree of risk as part of the job, believing that the vessel is the primary target rather than the people on board. However, recent developments in the Russia-Ukraine conflict zone had resulted in a sharp deterioration in security conditions, which in turn inflicted trauma significant enough for experienced officers to refuse Black Sea assignments. The bigger question is whether this represents a precedence for the other key conflict zones, including the South China Sea territorial disputes.

• Ensuing casualties are real. The Russia-Ukraine crisis has prompted the United Nations (UN) Human Rights to release a statement on 24 Jul 26, detailing at least 6,000 seafarers on some 400 vessels remained stranded around the Strait, having been unable to evacuate during the ceasefire. Some were treated worse ie about 93 crewmates across nine vessels were abandoned at sea by shipowners. More than 4 Indian seafarers were killed in recent weeks, bringing the total number of reported seafarer deaths to 17 since the start of the conflict. Most recently, Ukraine’s Transport Minister claimed Russia had been “systematically attacking civilian ships multiple times” and counted five attacks already in Aug 26
   
• This has prompted many experienced seafarers to “never return” for fear of being killed, rather than merely caught in a crossfire. As experienced officers are increasingly opting out of Black Sea voyages, shipowners can cast a wider net with higher salary offers to entice seafarers to come on board. However, when commercial decisions outweigh considerations of competence and risk management, ie the newly hired seafarer may not be equipped to navigate sailing through conflict zones, such actions can reduce the quality of work. 
   
• The global seafarer crisis predates these geopolitical events. We acknowledge that recent geopolitical developments are unprecedented as they shamelessly violate the most fundamental rule of international law - the prohibition on use of force. However, they were not the cause but merely a catalyst of the global shipping humanitarian crisis that had already started, but overlooked by stakeholders and governments over the years despite the importance of seafarers that enable 90% of global trade. Malaysia is facing a similar crisis in tandem with global. The seafarer shortage (especially of qualified officers) had been prevalent, but now augmented by retention crisis.
   
• This retention crisis was made more apparent with the fear and psychological damage stemming from geopolitical war developments, alongside other structural factors spotted by the Seafarers Happiness Index (which declined qoq in 2Q26). Markedly lower satisfaction with shore leave reflects seafarers’ frustration at being unable to make proper use of their leave due to additional deployments and paperwork, issues that are also captured under the “workload” and “welfare” parameters.
   
• MISC Berhad (BUY/Target: RM9.50) – As one of the largest global shipping players, MISC is the only locally listed shipping stock with major, integrated supply chain exposure globally, and hence would naturally have a higher proportion of qualified officers (and have greater responsibility for their welfare) in its seafarer crew. We believe MISC is quite advanced in adopting and self-monitoring on ESG issues including seafarers’ welfare and environmental management, using systems like Tanker Management and Self-Assessment (TMSA)