Comparative TCE Earnings Analysis

During any given period the relative health of the tanker freight spot market, and the corresponding general well-being of tanker owners, is typically assessed by a review of the average time charter equivalent (TCE) earnings, expressed in $/day for the period for a given class of tankers. As is well understood by industry watchers and participants, this parameter is arrived at by transforming spot market rates expressed in terms of Worldscale to daily rates expressed in terms of ($/day) through simple voyage economics calculations. In the general case, these calculations assume a round trip voyage assumption, that is, a ballast voyage transit from the discharge port to the load port and a laden voyage transit from the load port to the discharge port.

In certain tanker sectors (Handy, Products, Panamax), owners and operators have historically scheduled vessels such that ballast legs are reduced through triangulation or backhauls or other techniques commonly referred to as ‘tramping”. More recently, these techniques have been more and more frequently applied in the deployment of larger vessels, up to and including VLCC’s. Therefore, it is likely, and more so now than in the past, that the assumption of round trip voyage economics in transforming spot market rates to TCE’s understates the actual earnings implied by spot market levels. In short, while tanker spot freight markets are anything but healthy at the moment, things may not be as bad as they appear for tanker owners and may actually be quite a bit better than supposed. As described above, this is because actual vessel voyage histories reflect more optimized routing than that implied by round trip assumptions.

Given the nature of our industry and the understandable reluctance for full disclosure by the tanker owning community, demonstrating proof of this has been difficult. Thanks to reporting standards required of companies listed on U.S. stock exchanges and recent listings of a reasonable cross-section of tanker companies, quantitative data is now available to investigate whether actual earnings levels exceed those implied by spot market levels.

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