A dramatic increase in global freight rates is making shipping ETFs the most direct way to invest in geopolitical risks.

One such investment that’s been performing extremely well this year is the Breakwave Tanker Shipping ETF (NYSE:BWET), which is up around 615% year-to-date tracking a historic jump in tanker earnings as disruption across key maritime chokepoints tightens global supply.

Global freight rates have soared to three times what they were at the beginning of the year, according to Financial Express. For example, the freight rate between the U.S. Gulf and China corridor has skyrocketed from about $4.60 to $15 per barrel, substantially increasing the costs of transporting crude oil. Furthermore, the war-risk insurance premium is currently sitting at 3% of the vessel’s total worth.

Freight Markets Go Into Overdrive

Earnings from tankers are currently at very high levels considering their scarcity. Very Large Crude Carriers (VLCC) earn around $135,700 per day, whereas some fixtures even reach $700,000. Suezmaxes and Aframaxes also fetch over $120,000 per day.

These numbers speak volumes about the current market situation.

The WET, which follows the freight future and not stocks, benefits greatly from the above situation. As routes lengthen, cargo availability tightens, and risk premiums surge, freight rates spike, and the ETF moves almost in lockstep.

Equity ETFs Ride The Margin Upside

Even shipping firms stand to gain, although not as aggressively. The SonicShares Global Shipping ETF (NYSE:BOAT), which tracks companies in the shipping industry, has risen around 30% YTD supported by rising margins as carriers capitalize on elevated rates and longer voyage distances.

Its holdings, including global tanker and container operators such as Frontline Plc (NYSE:FRO) and Mitsui OSK Lines Ltd (OTC:MSLOY), are seeing improved pricing power as supply chains become more complex and less predictable.

More Friction, Less Oil

The broader context of this move involves changes in global shipping. With crude flows from the Middle East affected and shipping cargo constrained across oil, LNG, and LPG markets, the idea of free and affordable global shipping is starting to break down.

Shipping is no longer just a function of demand; it's increasingly dictated by risk.

From an ETF standpoint, that represents a major development. Funds such as BWET now serve as gauges of the state of global friction, with equity-focused shipping ETFs like BOAT offering leveraged exposure to sustained pricing power.

If current trends hold, shipping ETFs could move from niche plays to core tools for trading a more fragmented, volatile global economy.

Photo: Leonid Sorokin on Shutterstock.com