The TCE Calculation Conundrum

On every public tanker earnings release, one sees an endless reference to the Time Charter Equivalent rate (TCE) as a measure of earnings results. However, it is rarely defined and, even if it is, one com pany is not necessarily going to calculate it in the same manner as another. Hence, as a measure, it is equivalent to each of the many television meteorologists utilizing a different measure for the outdoor temperature; everyone would understand the goal of the reading but no one would have anything to benchmark the reading against.

We are not saying that companies are being dishonest whatsoever. In fact we applaud the effort to use the device but there are many ways to calculate the number to measure a fleet of ships. Hypothetically, how Genmar calculates its TCE for its Aframax fleet may be very different to how TK measures its fleet: They have a different composition, different markets and different capabilities so that while Teekay may have a higher TCE reported rate, Genmar might have earned a better rate per ton. A place where the TCE can be actively compared is between OSG and Frontline, which had, until the week of May 7th, elements of their VLCC fleets working in the same Tankers International Pool. Each company had very different TCEs for similar tonnage and likely did not calculate all the elements of the TCE in a uniform manner – so for similar VLCC fleets the TCE numbers were not soundly comparable. Obviously it makes the most sense for each company to report the best possible number and so the method of calculation is the key.

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