Freight rates don’t usually make headlines until something goes wrong. Then suddenly, everyone has an opinion. But Frank Holmes, CEO and CIO of U.S. Global Investors, has been watching the mechanics of global shipping since long before it became a trending topic, and what he’s seeing right now—across tanker routes, liquefied natural gas (LNG) terminals, and cargo lanes—tells a more nuanced story than most investors realize.
Holmes is the driving force behind the U.S. Global Sea to Sky Cargo ETF (ticker: SEA), a fund built to capture the full ecosystem of global cargo movement—roughly 70% sea shipping and 30% air freight. SEA seeks to track the performance of the U.S. Global Sea to Sky Index using a Smart Beta 2.0 strategy, screening for efficiency across marine shipping, air freight and courier, and port and harbor companies worldwide. With 31 holdings and a net expense ratio of 0.60% as of March 31, 2026, SEA aims to give investors diversified exposure to the companies moving goods across the globe.
Why Freight Rates Are Moving—and Why It Matters
The setup for SEA’s recent performance didn’t begin overnight. Geopolitical tension, regulatory shifts, and structural capacity constraints have been compressing supply in the shipping market for years—and mounting tariff pressures have accelerated what was already building beneath the surface. Holmes points to 2025 as the inflection point when the strategy’s thesis began visibly playing out.
“The SEA ETF did start to outperform the broader market, and in 2025, it was close to outperforming roughly two to one,” he notes. “I think this really highlights how tariffs have had a meaningful impact on freight rates, which has been a positive driver. At the same time, global trade remains strong and resilient—we’re simply seeing cargo flows redirect rather than contract.”
Redirection, not contraction. Cargo rerouting signals adaptation, not collapse. As ships navigate around areas of geopolitical stress in the Middle East, transit times and insurance costs have climbed sharply.
“What used to cost around $10,000 a day can now be closer to $250,000 a day, largely because ships are taking longer, more complex routes to deliver commodities and finished goods amid ongoing geopolitical stress in the Middle East,” notes Holmes.
Those costs flow through to freight rates—and ultimately to the companies in SEA’s portfolio.
Layered on top of geopolitical rerouting is a regulatory dynamic that quietly tightened fleet capacity even before the COVID-19 pandemic onset. Requirements for vessels to use lower-sulfur fuels when accessing key ports effectively reduced the number of ships able to service major routes. Combined with the near-absence of new large vessel orders during previous downturns, the result is a market where supply has simply not kept pace with demand. Fleet growth has remained well below demand expansion in recent years.
“You now have a clear supply-and-demand imbalance in the shipping market,” Holmes says. “There are only a limited number of vessels capable of servicing global trade routes, and when you layer in geopolitical and regulatory constraints, it further tightens capacity.”
The Mechanics Behind Shipping’s Supply Crunch
Shipping capacity doesn’t flex the way most industries do—and that structural rigidity is a feature, not a bug, for investors tracking freight rates. The shipping industry has several structural mechanisms that limit large capacity increases: fleet idling, where unused ships are voluntarily parked; ship scrapping, where vessels are dismantled at around 25 years old; and speed reduction, where sailing slower effectively reduces the available supply of capacity. Unlike most industries, new supply can’t be switched on quickly. Building a large vessel takes years.
“Shipping moves roughly 80% of globally traded commodities, with oil and gas as the largest component, followed by iron ore, copper, and others,” Holmes explains. “It’s a powerful barometer of global economic activity, reflecting commodities moving into Asia and then returning as higher-value finished goods bound for global markets, including the U.S.”
When you own SEA, you own exposure to the arteries of the global economy—not a single sector bet, but a read on how goods actually move around the world. LNG flowing from Texas to Europe, auto carriers delivering Hyundais and Toyotas to U.S. ports, container ships redistributing manufactured goods from Asian factories—all of it runs through the companies in SEA’s index. And at the premium end of the cargo spectrum, high-value shipments such as Nvidia chips from Taiwan increasingly travel by air because of their value and speed requirements, which is precisely why the fund maintains its 30% air freight allocation alongside sea shipping.
Smart Beta 2.0: How the Portfolio Is Built
The index underlying SEA uses what U.S. Global regards as a Smart Beta 2.0 approach—a combination of passive structure and active, fundamental screening, along with rigorous backtesting. Holdings must meet minimum market cap thresholds and are weighted based on a combined ranking of market capitalization, cash flow return on invested capital, cash-flow-to-price, and earnings-to-price.
The top six shipping companies each receives a 5% weighting, requiring a minimum market cap of $400 million. The next seven receive 4% weightings at a $300 million minimum, and the following six receive 2% weightings at a $100 million minimum. The top 10 air freight companies each receives a 3% weighting with a $200 million market cap floor. The index rebalances quarterly.
Holmes developed the Smart Beta 2.0 framework through the firm’s U.S. Global Jets ETF (ticker: JETS)—ideally built to outperform the NYSE Global Airlines Index—and extended the approach to capture trade flows between emerging and developed markets with SEA. “Portfolio construction is just as important as stock selection,” Holmes says, “and each segment of the industry has its own drivers when it comes to picking stocks.”
As of the most recent quarter end, the fund’s top 10 holdings reflected the global scope of the strategy, spanning names across marine shipping, logistics, and tanker operations—with significant exposure across Asia-Pacific, Europe, and North America.
One financial characteristic of the shipping sector that tends to surprise advisors is dividend yield. “When we launched the product a couple of years ago, dividend yields reached around 18% for that period,” Holmes points out. “While I wouldn’t expect that level again this year, it highlights an important characteristic of the shipping industry: companies in this space tend to generate meaningful cash flow and, at times, can pay very strong dividends.”
The cash flow profile of these businesses—and their tendency to return capital—adds a dimension beyond pure price appreciation.
Geopolitics as a Structural Driver
Holmes is careful not to frame geopolitical disruption as a temporary tailwind. The tensions reshaping shipping routes today reflect a more durable change—a fundamental realignment in how nations think about strategic trade infrastructure. U.S.-China friction is playing out far beyond bilateral trade, touching port acquisitions, military posture, and access to critical waterways. Holmes points to Australia’s push to reclaim a strategically significant northern seaport, geopolitical drama surrounding the Panama Canal, and China’s expanding military presence as evidence of the breadth of the shift. “So, we’re seeing widespread global disruptions in strategic positioning,” he says.
The order of priorities has inverted. Holmes observes that national security considerations now shape trade decisions more than efficiency does—determining which lanes are used, which ports get built, and which carriers earn preferred access. “Where trade once came first and national security followed, now national security increasingly drives trade considerations.” For shipping companies, that inversion extends the duration of elevated freight activity well beyond any single flashpoint.
For shipping companies—and for SEA—that dynamic extends the duration of elevated freight activity well beyond any single geopolitical flashpoint.
AI is playing an emerging role in the sector as well. Holmes sees it reshaping logistics from booking to route optimization, with satellite data now being used to identify safer shipping lanes in real time.
The Outlook
Holmes acknowledges that the road ahead won’t be a straight line higher. With the U.S. entering a midterm election year, he expects domestic economic priorities to move to the forefront—a dynamic he sees as broadly supportive of growth, even if capital markets deliver it unevenly. Volatility is part of the deal.
“The path will likely be more volatile with zigzag moves in the capital markets—almost like March Madness, with plenty of fake outs along the way,” he says. All the same, Holmes remains optimistic. “We’re still in a major spending environment, and I remain constructive and bullish overall,” he adds.
SEA seeks to offer a relatively rare potential opportunity: a liquid, rules-based vehicle with exposure to the physical infrastructure of global commerce. Because the fund’s performance drivers—freight rates, vessel supply, geopolitical routing—operate independently of the narratives dominating most equity portfolios, the strategy aims to behave differently from traditional sector allocations. In a market where genuine diversification is increasingly hard to find, the ships are still sailing—and the economics of moving the world’s goods remain as compelling as ever.
To learn more about the U.S. Global Sea to Sky Cargo ETF (NYSE Arca: SEA), please visit http://www.seaetf.com/. All applicable information, risks, etc. can be found on the website. Distributed by Quasar Distributors, LLC. U.S. Global Investors is the investment advisor to SEA. This article should not be considered investment advice.
