IBK Investment Securities, in a shipbuilding and shipping sector report published on the 6th, concluded that the growing tendency of very large gas carriers (VLGCs) to reroute around the Cape of Good Hope represents a structural shift rather than a passing anomaly — and that new VLGC orders will remain robust as a result.
Spot rates and time charters tell different stories
As of the fourth week of September, VLGC spot rates stood at $187,923 per day — barely 0.8% above their May peak. Yet one-year time-charter rates told a strikingly different story, surging 51.8% over the same period to $109,811 per day. That divergence is significant. It suggests that shipowners are not simply cashing in on today's elevated earnings; they are locking in vessels on long-term contracts, signalling a belief that high freight rates will persist for years rather than months.
Two triggers, one structural diagnosis
IBK identified two immediate catalysts for the freight spike. First, disruptions to Middle Eastern LPG flows caused by tensions around the Strait of Hormuz have redirected Asian demand towards American cargoes. Second, the anticipated arrival of a super El Niño in the second half of the year threatens to reduce water levels in Gatun Lake, constraining traffic through the Panama Canal. Both factors are, in principle, temporary — and some analysts have dismissed the rate rally accordingly.
IBK's report pushes back against that view. Even after the geopolitical noise fades and weather patterns normalise, it argues, the LPG shipping market is likely to find itself in a state of structural undersupply.
A trade route transformation already under way
The underlying shift in LPG trade flows predates the current crisis. The United States is now the world's largest LPG exporter, and continued investment in export terminal capacity means its export growth rate is set to outpace that of any other major supplier. On the demand side, Asia dominates: the region's LPG imports — in both volume and growth — exceed those of the rest of the world combined. The broadening of long-haul trade flows from American terminals to Asian buyers is therefore a structural trend that will outlast the current conflict, IBK concludes.
The Panama Canal bottleneck
Competition for Panama Canal slots adds another layer of constraint. The canal's new locks — designed for so-called neopanamax vessels — have a fixed throughput capacity of roughly 300-odd transits per month. As American gas exports expand and the global neopanamax container fleet grows simultaneously, the slots available to gas carriers are being gradually squeezed out. Should falling water levels in Gatun Lake reduce available slots further, the bottleneck could tighten considerably. The implication is that VLGCs will increasingly opt for the longer Cape of Good Hope route as a matter of practical necessity, not just geopolitical caution.
The arithmetic of undersupply
The supply-demand numbers support this thesis. Based on current orderbooks, total VLGC fleet capacity in 2028 will be only 32.0% larger than in 2025, rising from an estimated 34.4m tonnes to 45.4m tonnes. Over the same period, LPG seaborne trade volumes — measured in tonne-miles, which account for voyage distance — are forecast to grow by 35.7%, from 817.1bn tonne-miles to 1,109.1bn tonne-miles. That gap of 3.7 percentage points between supply and demand growth is not trivial.
The report highlights a further warning sign: one-year charter rates have already surpassed the peaks reached during the Gatun Lake drought of 2023–24, suggesting that the current tightness is more severe than the last comparable episode.
Risks to the bull case
The optimistic scenario is not without its vulnerabilities. A de-escalation of tensions around the Strait of Hormuz, or a milder-than-expected El Niño, could send spot rates sharply lower. A surge in newbuild orders — itself a likely consequence of today's high rates — could flip the market into oversupply after 2030. Investors should also note that rising shipyard prices during a boom cycle lengthen payback periods for owners, increasing the risk that today's orders prove less profitable than they appear.
Implications for Korean shipbuilders
Despite these caveats, IBK's central message is clear: the strength of the LPG shipping market cannot be explained by temporary shocks alone. It is underpinned by the structural growth of trans-Pacific LPG trade and intensifying competition for Panama Canal capacity — trends measured in decades, not quarters. For South Korea's big three shipbuilders — HD Korea Shipbuilding & Offshore Engineering, Samsung Heavy Industries, and Hanwha Ocean — all of which carry significant VLGC orderbooks, that conclusion amounts to a sustained tailwind for new orders.