TCE – Time Charter Equivalent

TCE (Time Charter Equivalent)

TCE (Time Charter Equivalent): Ship operating expenses are the fixed costs of the ship and include crewing, repairs, and planned maintenance, purchasing costs for stores and lubricants; insurance – both Hull and Machinery (H&M) and Protection and Indemnity (P&I)  premiums; and general administration expenses. These costs do not vary with the voyage and are thus easily estimated. Relevant cost element that is attributable to the voyage (computed as daily operating costs) must be set against the income that the voyage generates in order to arrive at a conclusion with respect to the financial viability of the voyage. In tanker chartering in particular, three types of extra insurance premiums may be incurred:

  • Insurance for the event of breaking International Navigating
    Limits (INL) (previously known as Institute Warranty Limited – IWL), or International Navigating Conditions as it is now called, possibly to enter the Baltic Sea or St. Lawrence Seaway in the wintertime.
  • Extra Insurance is the War Risk Additional Premium (WRAP), which covers the vessel’s hull and machinery against war risks.
  • Over Age Premium, which concerns ships that are classified by underwriters as overage.

Under a tanker voyage charter, the shipowner is responsible for the costs of discharging (using the ship’s own pumps) and also the costs of heating the cargo (if necessary and agreed in the charter party). Tankers have self-discharging pumps, and many of them have heating coils within the tanks that are used to keep the cargo in liquid form through heating.

Under a voyage charter, shipowner generally pays a brokerage commission of 1.25 percent of the freight to a shipbroker who assists in the charter party fixture. Address commission is a type of rebate and is payable by the shipowner to the charterer. Gross voyage surplus will be ascertained by deducting the total voyage expenses from net freight.

A Gross Daily Rate is estimated by dividing the total gross voyage surplus by the number of total days for the voyage. This is the so-called Time Charter Equivalent (TCE) Rate, but with commission/brokerage paid for the voyage charter. The Net Daily Income is Gross Daily minus the Daily Operating Costs.

Finally, the equivalent time charter rate can be expressed in terms of daily hire by taking the gross daily rate and applying to it a factor representing the commission/brokerage payable. TCE (Time Charter Equivalent) is calculated by subtracting voyage expenses from voyage revenues and then dividing the total by the duration of the round-trip voyage. TCE (Time Charter Equivalent) is used to indicate the average daily revenue performance of a vessel and is a figure that can be easily compared to a respective time charter hire.

Port Charges and Canal Transit Fees: Port costs include port dues for entering the ports and for the use of port services (e.g., towage, pilotage) and equipment. Since port charges cannot be assessed easily, companies may refer to previous records of calls at the particular ports or obtain information from port agents, who will ask for a proforma disbursement account for the vessel in question. A relevant book with indicative expenses incurred by vessels is published by BIMCO (Baltic International Maritime Counsel). If a bunkering port is approached, then port disbursements of this port are also estimated. In addition to port calls, if a ship passes through a canal during the voyage, then the charges payable must be calculated and provided for in the voyage estimate. Canal charges are based on the deadweight (DWT) or gross register tonnage (GRT) of the ship; they vary with ship size.

Freight Income Calculations: Freight income can be calculated by multiplying the figure of the anticipated cargo to be loaded on board with the freight rate. This results in the gross freight. The total commission and brokerage payable by the shipowner to the brokers and charterer (address commission) will be deducted, yielding the net freight.

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What is TCE (Time Charter Equivalent)?

Time Charter Equivalent (TCE) is a standard shipping industry performance measure used to compare the revenue generated by a vessel on different voyages or contracts. It is expressed in US dollars per day and allows for a more accurate comparison of earnings across different vessel types, charter types, and routes.

TCE is calculated by taking the total voyage revenue (from freight or charter rates), deducting voyage expenses (such as port charges, fuel costs, and other operating expenses), and then dividing the result by the total number of days in the voyage. This calculation provides a normalized daily revenue figure that can be compared across different ships and voyages.

In essence, TCE enables shipowners, operators, and industry analysts to better understand the profitability of a vessel, considering various factors that can impact earnings. By using TCE, it is easier to make informed decisions on vessel deployment, chartering, and overall fleet management.

 

TCE (Time Charter Equivalent) Example 1

Suppose a shipowner has a Supramax vessel and enters into a voyage charter to transport a cargo of 50,000 metric tons of bulk goods. The agreed freight rate is $20 per metric ton. The voyage includes loading and discharging operations at the port of loading and port of discharge, respectively.

  1. Calculate the total voyage revenue: Total cargo (in metric tons) x freight rate per metric ton 50,000 metric tons x $20/mt = $1,000,000
  2. Estimate the voyage expenses:
    • Bunker (fuel) costs: $120,000
    • Port charges: $30,000
    • Canal fees: $20,000
    • Agency fees: $10,000 Total voyage expenses = $180,000
  3. Calculate the net voyage revenue: Total voyage revenue – total voyage expenses $1,000,000 – $180,000 = $820,000
  4. Determine the total number of days for the voyage:
    • 5 days for loading operations
    • 20 days for sailing to the discharge port
    • 5 days for discharging operations Total voyage days = 30 days
  5. Calculate the Time Charter Equivalent (TCE): Net voyage revenue / total voyage days $820,000 / 30 days = $27,333/day

In this example, the TCE for the Supramax vessel on this specific voyage is $27,333 per day. This figure can be used to compare the vessel’s performance with other voyages or charter options, as well as to analyze the profitability of deploying the vessel on this route.

 

TCE (Time Charter Equivalent) Example 2

Suppose a shipowner has a Panamax vessel and enters into a time charter to transport a cargo of 75,000 metric tons of grain. The agreed time charter rate is $15,000 per day. The voyage includes loading and discharging operations at the port of loading and port of discharge, respectively.

  1. Determine the total number of days for the voyage:
    • 6 days for loading operations
    • 25 days for sailing to the discharge port
    • 6 days for discharging operations Total voyage days = 37 days
  2. Calculate the total voyage revenue: Time charter rate per day x total voyage days $15,000/day x 37 days = $555,000
  3. Estimate the voyage expenses:
    • Bunker (fuel) costs: $150,000
    • Port charges: $35,000
    • Canal fees: $25,000
    • Agency fees: $15,000 Total voyage expenses = $225,000
  4. Calculate the net voyage revenue: Total voyage revenue – total voyage expenses $555,000 – $225,000 = $330,000
  5. Calculate the Time Charter Equivalent (TCE): Net voyage revenue / total voyage days $330,000 / 37 days = $8,919/day

In this example, the TCE for the Panamax vessel on this specific voyage is $8,919 per day. This figure can be used to compare the vessel’s performance with other voyages or charter options, as well as to analyze the profitability of deploying the vessel on this route.

 

TCE (Time Charter Equivalent) Example 3

Suppose a shipowner has an Aframax tanker and enters into a spot voyage charter to transport 80,000 metric tons of crude oil. The agreed freight rate is $10 per metric ton. The voyage includes loading and discharging operations at the port of loading and port of discharge, respectively.

  1. Calculate the total voyage revenue: Total cargo (in metric tons) x freight rate per metric ton 80,000 metric tons x $10/mt = $800,000
  2. Estimate the voyage expenses:
    • Bunker (fuel) costs: $180,000
    • Port charges: $40,000
    • Canal fees: $22,000
    • Agency fees: $8,000 Total voyage expenses = $250,000
  3. Calculate the net voyage revenue: Total voyage revenue – total voyage expenses $800,000 – $250,000 = $550,000
  4. Determine the total number of days for the voyage:
    • 4 days for loading operations
    • 18 days for sailing to the discharge port
    • 4 days for discharging operations Total voyage days = 26 days
  5. Calculate the Time Charter Equivalent (TCE): Net voyage revenue / total voyage days $550,000 / 26 days = $21,154/day

In this example, the TCE for the Aframax tanker on this specific voyage is $21,154 per day. This figure can be used to compare the vessel’s performance with other voyages or charter options, as well as to analyze the profitability of deploying the vessel on this route.

 

TCE (Time Charter Equivalent) Example 4

Suppose a shipowner has a Capesize vessel and enters into a spot voyage charter to transport 150,000 metric tons of iron ore. The agreed freight rate is $8 per metric ton. The voyage includes loading and discharging operations at the port of loading and port of discharge, respectively.

  1. Calculate the total voyage revenue: Total cargo (in metric tons) x freight rate per metric ton 150,000 metric tons x $8/mt = $1,200,000
  2. Estimate the voyage expenses:
    • Bunker (fuel) costs: $250,000
    • Port charges: $45,000
    • Canal fees: $30,000
    • Agency fees: $12,000 Total voyage expenses = $337,000
  3. Calculate the net voyage revenue: Total voyage revenue – total voyage expenses $1,200,000 – $337,000 = $863,000
  4. Determine the total number of days for the voyage:
    • 7 days for loading operations
    • 35 days for sailing to the discharge port
    • 7 days for discharging operations Total voyage days = 49 days
  5. Calculate the Time Charter Equivalent (TCE): Net voyage revenue / total voyage days $863,000 / 49 days = $17,612/day

In this example, the TCE for the Capesize vessel on this specific voyage is $17,612 per day. This figure can be used to compare the vessel’s performance with other voyages or charter options, as well as to analyze the profitability of deploying the vessel on this route.

 

TCE (Time Charter Equivalent) Example 5

Suppose a shipowner has a Handysize vessel and enters into a spot voyage charter to transport 28,000 metric tons of coal. The agreed freight rate is $12 per metric ton. The voyage includes loading and discharging operations at the port of loading and port of discharge, respectively.

  1. Calculate the total voyage revenue: Total cargo (in metric tons) x freight rate per metric ton 28,000 metric tons x $12/mt = $336,000
  2. Estimate the voyage expenses:
    • Bunker (fuel) costs: $90,000
    • Port charges: $25,000
    • Canal fees: $15,000
    • Agency fees: $6,000 Total voyage expenses = $136,000
  3. Calculate the net voyage revenue: Total voyage revenue – total voyage expenses $336,000 – $136,000 = $200,000
  4. Determine the total number of days for the voyage:
    • 4 days for loading operations
    • 12 days for sailing to the discharge port
    • 4 days for discharging operations Total voyage days = 20 days
  5. Calculate the Time Charter Equivalent (TCE): Net voyage revenue / total voyage days $200,000 / 20 days = $10,000/day

In this example, the TCE for the Handysize vessel on this specific voyage is $10,000 per day. This figure can be used to compare the vessel’s performance with other voyages or charter options, as well as to analyze the profitability of deploying the vessel on this route.

 

 

What is Gross Daily Rate in Ship Chartering?

In ship chartering, the Gross Daily Rate refers to the revenue earned by a vessel per day before deducting any voyage-related expenses. This rate is typically expressed in US dollars per day and is used as a benchmark for comparing the earnings of different vessels or the same vessel operating on different voyages.

The Gross Daily Rate can be determined differently depending on the type of charter:

  1. For a voyage charter, the gross daily rate is calculated by dividing the total freight revenue by the total number of days taken for the voyage, including loading and discharging operations.
  2. For a time charter, the gross daily rate is simply the agreed daily charter rate between the shipowner and the charterer, as the charterer is responsible for covering most of the voyage-related expenses.

It is important to note that the Gross Daily Rate doesn’t account for the operating expenses associated with the voyage, such as bunker (fuel) costs, port charges, canal fees, or agency fees. To determine the net revenue earned by the vessel, these expenses must be deducted from the gross daily rate, resulting in the Time Charter Equivalent (TCE). The TCE provides a more accurate representation of the vessel’s profitability on a specific voyage or charter.

 

Gross Daily Rate Example 1 in Ship Chartering

Suppose a shipowner has a Panamax vessel and has two chartering options:

Option 1: Voyage Charter The shipowner agrees to transport 60,000 metric tons of grain on a voyage charter with a freight rate of $15 per metric ton.

  1. Calculate the total voyage revenue: Total cargo (in metric tons) x freight rate per metric ton 60,000 metric tons x $15/mt = $900,000
  2. Determine the total number of days for the voyage:
    • 5 days for loading operations
    • 20 days for sailing to the discharge port
    • 5 days for discharging operations Total voyage days = 30 days
  3. Calculate the Gross Daily Rate: Total voyage revenue / total voyage days $900,000 / 30 days = $30,000/day

In this voyage charter, the Gross Daily Rate is $30,000 per day.

Option 2: Time Charter The shipowner agrees to a time charter at a daily rate of $22,000 per day for 30 days.

In this time charter, the Gross Daily Rate is simply the agreed daily charter rate, which is $22,000 per day.

By comparing the Gross Daily Rates of the two chartering options ($30,000/day for the voyage charter and $22,000/day for the time charter), the shipowner can get an initial idea of which option might be more profitable. However, it’s essential to consider the voyage-related expenses and calculate the Time Charter Equivalent (TCE) to obtain a more accurate comparison of the vessel’s profitability on each charter option.

 

Gross Daily Rate Example 2 in Ship Chartering

Suppose a shipowner has a Supramax vessel and has two chartering options:

Option 1: Voyage Charter The shipowner agrees to transport 50,000 metric tons of coal on a voyage charter with a freight rate of $18 per metric ton.

  1. Calculate the total voyage revenue: Total cargo (in metric tons) x freight rate per metric ton 50,000 metric tons x $18/mt = $900,000
  2. Determine the total number of days for the voyage:
    • 4 days for loading operations
    • 15 days for sailing to the discharge port
    • 4 days for discharging operations Total voyage days = 23 days
  3. Calculate the Gross Daily Rate: Total voyage revenue / total voyage days $900,000 / 23 days = $39,130/day

In this voyage charter, the Gross Daily Rate is $39,130 per day.

Option 2: Time Charter The shipowner agrees to a time charter at a daily rate of $32,000 per day for 23 days.

In this time charter, the Gross Daily Rate is simply the agreed daily charter rate, which is $32,000 per day.

By comparing the Gross Daily Rates of the two chartering options ($39,130/day for the voyage charter and $32,000/day for the time charter), the shipowner can get an initial idea of which option might be more profitable. However, it’s essential to consider the voyage-related expenses and calculate the Time Charter Equivalent (TCE) to obtain a more accurate comparison of the vessel’s profitability on each charter option.

 

Gross Daily Rate Example 3 in Ship Chartering

Suppose a shipowner has an Aframax tanker and has two chartering options:

Option 1: Voyage Charter The shipowner agrees to transport 90,000 metric tons of crude oil on a voyage charter with a freight rate of $11 per metric ton.

  1. Calculate the total voyage revenue: Total cargo (in metric tons) x freight rate per metric ton 90,000 metric tons x $11/mt = $990,000
  2. Determine the total number of days for the voyage:
    • 3 days for loading operations
    • 22 days for sailing to the discharge port
    • 3 days for discharging operations Total voyage days = 28 days
  3. Calculate the Gross Daily Rate: Total voyage revenue / total voyage days $990,000 / 28 days = $35,357/day

In this voyage charter, the Gross Daily Rate is $35,357 per day.

Option 2: Time Charter The shipowner agrees to a time charter at a daily rate of $28,000 per day for 28 days.

In this time charter, the Gross Daily Rate is simply the agreed daily charter rate, which is $28,000 per day.

By comparing the Gross Daily Rates of the two chartering options ($35,357/day for the voyage charter and $28,000/day for the time charter), the shipowner can get an initial idea of which option might be more profitable. However, it’s essential to consider the voyage-related expenses and calculate the Time Charter Equivalent (TCE) to obtain a more accurate comparison of the vessel’s profitability on each charter option.

 

Gross Daily Rate Example 4 in Ship Chartering

Suppose a shipowner has a Capesize vessel and has two chartering options:

Option 1: Voyage Charter The shipowner agrees to transport 170,000 metric tons of iron ore on a voyage charter with a freight rate of $7 per metric ton.

  1. Calculate the total voyage revenue: Total cargo (in metric tons) x freight rate per metric ton 170,000 metric tons x $7/mt = $1,190,000
  2. Determine the total number of days for the voyage:
    • 6 days for loading operations
    • 40 days for sailing to the discharge port
    • 6 days for discharging operations Total voyage days = 52 days
  3. Calculate the Gross Daily Rate: Total voyage revenue / total voyage days $1,190,000 / 52 days = $22,885/day

In this voyage charter, the Gross Daily Rate is $22,885 per day.

Option 2: Time Charter The shipowner agrees to a time charter at a daily rate of $18,000 per day for 52 days.

In this time charter, the Gross Daily Rate is simply the agreed daily charter rate, which is $18,000 per day.

By comparing the Gross Daily Rates of the two chartering options ($22,885/day for the voyage charter and $18,000/day for the time charter), the shipowner can get an initial idea of which option might be more profitable. However, it’s essential to consider the voyage-related expenses and calculate the Time Charter Equivalent (TCE) to obtain a more accurate comparison of the vessel’s profitability on each charter option.

 

Gross Daily Rate Example 5 in Ship Chartering

Suppose a shipowner has a Handymax vessel and has two chartering options:

Option 1: Voyage Charter The shipowner agrees to transport 45,000 metric tons of wheat on a voyage charter with a freight rate of $14 per metric ton.

  1. Calculate the total voyage revenue: Total cargo (in metric tons) x freight rate per metric ton 45,000 metric tons x $14/mt = $630,000
  2. Determine the total number of days for the voyage:
    • 5 days for loading operations
    • 18 days for sailing to the discharge port
    • 5 days for discharging operations Total voyage days = 28 days
  3. Calculate the Gross Daily Rate: Total voyage revenue / total voyage days $630,000 / 28 days = $22,500/day

In this voyage charter, the Gross Daily Rate is $22,500 per day.

Option 2: Time Charter The shipowner agrees to a time charter at a daily rate of $19,000 per day for 28 days.

In this time charter, the Gross Daily Rate is simply the agreed daily charter rate, which is $19,000 per day.

By comparing the Gross Daily Rates of the two chartering options ($22,500/day for the voyage charter and $19,000/day for the time charter), the shipowner can get an initial idea of which option might be more profitable. However, it’s essential to consider the voyage-related expenses and calculate the Time Charter Equivalent (TCE) to obtain a more accurate comparison of the vessel’s profitability on each charter option.

 

 

What is Net Daily Income in Ship Chartering?

In ship chartering, the Net Daily Income refers to the profit earned by a vessel per day after deducting all voyage-related expenses from the gross daily revenue. This metric is expressed in US dollars per day and is used to assess the profitability of a vessel operating on a specific voyage or charter.

To calculate the Net Daily Income, you need to first determine the Time Charter Equivalent (TCE). The TCE represents the net revenue earned by the vessel per day after accounting for all voyage expenses, such as bunker (fuel) costs, port charges, canal fees, and agency fees.

Once the TCE is calculated, you also need to consider the vessel’s daily operating expenses, which include crew wages, maintenance costs, insurance premiums, and other costs associated with running the vessel.

Here’s how to calculate the Net Daily Income:

  1. Calculate the TCE (as explained above).
  2. Estimate the daily operating expenses of the vessel.
  3. Subtract the daily operating expenses from the TCE to obtain the Net Daily Income.

Net Daily Income = TCE – Daily Operating Expenses

The Net Daily Income provides a comprehensive measure of the vessel’s profitability, taking into account both voyage-related and operating expenses. Shipowners and charterers can use this metric to compare the performance of different vessels, evaluate the financial viability of specific voyages or charter options, and make informed decisions about deploying their fleet.

 

What is Daily Operating Costs in Ship Chartering?

In ship chartering, Daily Operating Costs refer to the expenses incurred in the day-to-day operations of a vessel. These costs are borne by the shipowner and are essential for maintaining the vessel’s functionality, ensuring the safety of the crew and cargo, and meeting regulatory requirements. Daily Operating Costs are typically expressed in US dollars per day.

The main components of Daily Operating Costs include:

  1. Crew wages and provisions: These costs cover the salaries, benefits, and food supplies for the vessel’s crew members.
  2. Maintenance and repairs: This category includes the costs of routine maintenance and repairs, including spare parts, painting, and dry-docking, to keep the vessel in good working condition and comply with industry standards.
  3. Insurance premiums: Shipowners must insure their vessels against various risks, including hull and machinery insurance (covering physical damages to the vessel) and protection and indemnity (P&I) insurance (covering liability for damage to cargo, pollution, and injuries to crew or third parties).
  4. Lubricants and consumables: These costs cover the lubricants and consumables used for the vessel’s engines and machinery.
  5. Management and administration: These expenses include the costs of managing and administering the vessel, such as fees paid to ship management companies, legal and accounting fees, and communication costs.
  6. Regulatory fees and certifications: Shipowners must pay fees for regulatory compliance, including registration fees, flag state fees, and costs related to obtaining and maintaining various maritime certifications and inspections.
  7. Miscellaneous expenses: This category covers any other day-to-day expenses not included in the above categories, such as costs for stores, supplies, and equipment.

It is important to note that Daily Operating Costs do not include voyage-related expenses, such as bunker (fuel) costs, port charges, canal fees, or agency fees, which are specific to a particular voyage or charter. To assess the profitability of a vessel on a specific voyage or charter, shipowners and charterers must consider both Daily Operating Costs and voyage-related expenses, using metrics such as Time Charter Equivalent (TCE) and Net Daily Income.

 

What is Voyage-Related Expenses in Ship Chartering?

In ship chartering, Voyage-Related Expenses refer to the costs incurred during a specific voyage or charter that are directly associated with transporting cargo from one location to another. These expenses can vary significantly depending on the route, type of cargo, and other factors. Voyage-Related Expenses are typically expressed in US dollars.

The main components of Voyage-Related Expenses include:

  1. Bunker (fuel) costs: Fuel is one of the most significant expenses in ship chartering. Bunker costs depend on the vessel’s fuel consumption rate, the distance traveled, and the prevailing price of bunker fuel at the time of the voyage.
  2. Port charges: These costs include various fees and charges associated with using port facilities for loading and discharging cargo, such as port dues, berthing fees, pilotage, and tug assistance.
  3. Canal fees: Vessels transiting through canals, such as the Panama Canal or the Suez Canal, must pay fees based on the size of the vessel and the type of cargo being transported.
  4. Agency fees: Shipowners often engage the services of local shipping agents to handle port formalities and documentation, arrange for supplies and services, and liaise with local authorities. Agents charge fees for their services, which are included in voyage-related expenses.
  5. Stevedoring and cargo handling costs: These expenses cover the costs of loading and discharging cargo at the ports of origin and destination. Stevedoring costs depend on the type of cargo, the quantity, and the specific port’s handling rates.
  6. Demurrage or despatch: In cases where loading or discharging operations take longer than the agreed laytime (the time allocated for cargo operations), demurrage charges may apply. Conversely, if cargo operations are completed ahead of schedule, the shipowner may be entitled to despatch money, which is a rebate on freight charges.
  7. Additional insurance premiums: Some voyages may require additional insurance coverage due to the nature of the cargo or specific risks associated with the route, such as war risk premiums for transiting through high-risk areas.

When assessing the profitability of a vessel on a specific voyage or charter, shipowners and charterers must consider both voyage-related expenses and daily operating costs. By deducting the voyage-related expenses from the gross daily revenue, the Time Charter Equivalent (TCE) can be calculated, which provides a better understanding of the vessel’s net profitability.

 

What is EWI in Ship Chartering?

In ship chartering, EWI stands for “Estimating Weighted Index” or “Estimated World Index.” It is a term used to describe an index that aims to reflect the average daily earnings of different types of vessels operating in the global shipping market. The EWI takes into account various factors, such as the size and age of the vessels, the trade routes they operate on, and the prevailing market rates for chartering.

EWIs are often used by shipowners, charterers, brokers, and analysts to track market trends and assess the overall health of the shipping industry. By monitoring the EWI, market participants can gain insights into the supply and demand dynamics, freight rate movements, and the overall direction of the shipping market.

There are several well-known shipping indexes that serve as a benchmark for various vessel types, such as the Baltic Dry Index (BDI) for dry bulk carriers and the Baltic Dirty Tanker Index (BDTI) for crude oil tankers. These indexes often have sub-indices for different vessel sizes, such as Capesize, Panamax, and Supramax in the case of the BDI.

It is important to note that the EWI is not specific to any individual charter or vessel but rather serves as a general indicator of the market conditions and average earnings for a particular vessel type or segment. To assess the profitability of a specific vessel or charter, shipowners and charterers must consider factors such as daily operating costs, voyage-related expenses, and Time Charter Equivalent (TCE) rates.

 

What is Over Age Premium in Ship Chartering?

In ship chartering, Over Age Premium refers to an additional insurance premium charged by insurance providers for covering vessels that are considered older than the standard age in the industry. The age threshold varies depending on the vessel type and the insurance company’s guidelines. Generally, vessels over 15 to 20 years of age may be subject to Over Age Premiums.

Older vessels may be considered to have a higher risk profile due to factors such as increased wear and tear, outdated technology, and potential non-compliance with the latest safety and environmental regulations. As a result, insurance providers may charge higher premiums to compensate for the increased likelihood of claims related to these risks.

Over Age Premiums can affect both the shipowner and the charterer, as the higher insurance costs may be passed on to the charterer in the form of higher freight rates or Time Charter Equivalent (TCE) rates. In some cases, charterers may also stipulate an age limit for the vessels they are willing to charter, which can limit the pool of available vessels for older ships and impact their competitiveness in the market.

When assessing the profitability and viability of a specific vessel or charter, shipowners and charterers must take into account factors such as Over Age Premiums, along with daily operating costs, voyage-related expenses, and market conditions.

 

What is War Risk Additional Premium (WRAP) in Ship Chartering?

In ship chartering, War Risk Additional Premium (WRAP) is an extra insurance premium charged by insurance providers to cover vessels operating in areas deemed high-risk due to war, piracy, terrorism, or other geopolitical tensions. The premium provides additional coverage for losses and damages resulting from these risks, which are typically not included in standard hull and machinery or protection and indemnity (P&I) insurance policies.

War Risk Additional Premiums are determined by several factors, including the vessel type, the value of the vessel and cargo, the specific high-risk area, and the duration of the vessel’s presence in that area. Insurance companies, guided by organizations such as the Joint War Committee (JWC), update and maintain lists of high-risk areas where WRAP may be applicable.

In ship chartering, the responsibility for covering the War Risk Additional Premium usually falls on the charterer. When a vessel is chartered to operate in a high-risk area, the charter party agreement typically includes clauses specifying the payment of WRAP by the charterer. These clauses may also address the shipowner’s and charterer’s rights and obligations in case the risk level changes during the charter period or if the vessel must deviate from its planned route to avoid high-risk areas.

It is crucial for both shipowners and charterers to consider the impact of War Risk Additional Premiums when assessing the profitability and viability of a specific voyage or charter. These additional costs, along with daily operating expenses, voyage-related expenses, and market conditions, can significantly influence the overall financial outcome of a charter.

 

Who pays the Extra Insurance in Ship Chartering?

In ship chartering, the responsibility for paying extra insurance, such as War Risk Additional Premium (WRAP) or Over Age Premium, generally depends on the type of charter agreement and the specific terms negotiated between the shipowner and the charterer. Here is an overview of who usually pays for the extra insurance in different chartering scenarios:

  1. Voyage Charter: In a voyage charter, the charterer typically bears the responsibility for any extra insurance premiums, such as WRAP, when the vessel is required to sail through high-risk areas. This is because the charterer determines the voyage route and the ports involved in the charter. The charter party agreement will usually include clauses specifying the payment of extra insurance premiums by the charterer and addressing any changes in risk levels during the voyage.
  2. Time Charter: In a time charter, the responsibility for extra insurance may be shared between the shipowner and the charterer, depending on the specific terms of the charter agreement. The shipowner is usually responsible for covering any Over Age Premiums, as these are related to the age and condition of the vessel. On the other hand, the charterer may be responsible for any additional premiums, such as WRAP, if the vessel is required to operate in high-risk areas during the charter period.
  3. Bareboat Charter: In a bareboat charter, the charterer is essentially responsible for all insurance-related costs, including any extra insurance premiums. This is because the charterer assumes full control and management of the vessel for the charter period, and the charter agreement typically requires the charterer to maintain appropriate insurance coverage for the vessel.

In all chartering scenarios, it is essential for both shipowners and charterers to clearly outline their responsibilities for extra insurance premiums in the charter party agreement. This ensures that both parties are aware of their obligations and can make informed decisions when assessing the profitability and viability of a specific voyage or charter.