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 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.