Voyage Estimation is the calculation of the profit or loss that a ship will make from a proposed voyage charter. Voyage Estimation is simply profit and loss calculation for the particular voyage in question that is arrived at by deducting all related expenses from total income.
In voyage charter, there are two (2) types of costs:
- Operating Costs: crew costs, repairs and maintenance, insurance, stores, lubes etc.
- Voyage Costs: bunker (fuel), port dues, dock dues, canal tolls etc.
In voyage charter, operating and voyage costs are paid for by the shipowner. Therefore, Voyage Estimation must take into account freight income and subtract all voyage-related expenses, including address commission and brokerage.
In voyage chartering negotiations, Voyage Estimation is an indispensable part that assists shipowners to assess the financial feasibility of a particular trip vis-a-vis alternative voyages that may be available and in relation to the amount of profit required as well as prevailing competing freight rates.
On the other hand, Voyage Estimation is used by charterers in order to evaluate the appropriate ship for an attempt to minimize the cost of the transportation services.
Alternative voyages may be offered to shipowner and each alternative needs to be estimated prior to negotiating and completing any chartering deal. Voyage Estimation must be performed as accurately as possible. Even tough, Voyage Estimation is an estimate, it gives a very good indication for the potential profitability of a particular voyage. Furthermore, Voyage Estimation may provide comparisons with a Time Charter Equivalent (TCE) charter. Time Charter Equivalent (TCE) estimate is a figure that denotes the daily hire that the ship will obtain if chartered on the particular voyage trip.
Process of Voyage Estimation: Voyage estimating is a process that takes into account the following factors:
- Cargo and Stowage Factor
- Ship Characteristics
- Time at Sea
- Time at Port (Loading and Discharging Operations)
- Time at Bunkering Port
- Bunker (Fuel) Costs
- Port Costs
- Canal Costs
- Freight Income
- Operating Expenses
- Commissions (Address Commissions and Brokerages)
- TCE (Time Charter Equivalent)
Voyage estimating is an important skill for all persons engaged in the activity of dry-cargo chartering, whether from an owner’s or a charterer’s perspective, even for competitive brokers. It is common these days for charterers to undertake contracts, to relet tonnage and to take in vessels not owned by them, on a voyage or on time charter, whereas competitive brokers need the ability to evaluate potential business, to enable them to present outwardly unattractive cargoes and vessels in their true light. So it is not only those closely associated with the control of tonnage that needs the knowledge and ability this lesson sets out to help you acquire.
The first essential in voyage estimating is to examine the subject heading itself. Despite the reference to ‘voyage’, voyage estimating will inevitably include the realistic valuation of time charter trips, since these are rarely as financially straightforward as they first might appear. The work ‘estimate’ speaks for itself and, whilst we have no wish to promote inaccuracy, it is necessary to point out that ships do not run like clockwork and it is, therefore, impossible to calculate to perfection. That is not to suggest that one’s aim should be less than total accuracy, and it is essential to do best towards achieving a realistic appraisal of the potential worth of any proposed venture.
Shipbrokers should always compare a final ‘estimate’ with the eventual ‘results’ of a voyage or trip, so that any procedural shortcomings can be identified, and future errors avoided. For voyage estimating it is essential to have a knowledge of maritime geography, with particular regard to distances and permissible load-lines. There are several commercial distance tables available to assist with distances involved and one of these should always be used when embarking on a full-blown voyage estimate. To start such an exercise using a guess for the most fundamental piece of data would be very foolish; there is a great deal of sense in the dictum ‘don’t remember the fact ‘remember where to find it’.