The Baltic, Time-Charter Equivalent (TCE) and Charts explained

The Baltic measures the S/D for ship and cargoes movements intensity in dry bulk commodities. Taking in 23 shipping routes measured on a timecharter basis USD/day, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain. Charts

Baltic dry chart 2013-11=09

When an index evolves from major highs to an extended bottoming formation during economic recovery , it can be called a long base range. Volume is very low through the formation until the breakout. The Baltic is consistent with the breakout of a long base range during the late stages of a slow economic recovery, running into an overhead resistance. Baltic entering a new range area. Baltic dry chart new range 2013-11=09

Yamamizu panamax update 3

Above: The Panamax Index is published in $/MT  for HSS (Heavy grain Sorghum and Soybeans)[1] Courtesy of Yamamizu Shipping Co., Ltd.

  Charts’ relevance in the context of charterers and owners economics decisions. Freight refers to the amount of money paid to the shipowner  for the carriage of cargo from point A to B and is thus normally applicable to voyage chartering while hire refers to money paid to the shipowner or charterer for the hire of a ship over a given period, and is thus applicable to time chartering (T/C).

Voyage vs T/C Under a T/C, charterer pays:

  • daily hire in USD/DAY
  • Voyages Costs(Fuel,ports charges,canal dues, cleaning cost, fumigation, customs).

Owners pays for:

  • Capital Costs
  • Operating costs(supplying crew and vessel parts and equipment).

Under a Voyage, the owner pays for:

  • everything and get paid on USD/MT basis.
  • Charterer pays a fixed USD/MT

TCE Time-Charter Equivalent (TCE) is a way to normalize Voyage USD/MT on a T/C Daily hire USD/DAY basis. Example: A Owner charges 31$/MT to haul a 50,000 mt  grain voyage from US PNW to Japan. That will have a T/C daily rate equivalent TCE which could be for example USD 50,958 per day.

TCE are estimates published by brokers to their clients. Brokers panelists of the Baltic report a transaction to the Baltic Exchange and to other brokers members of the Baltic.

The onward transmission to non-members of any postings issued by the Exchange and received by members is strictly prohibited as this could lead to action for defamation against both the member and the Baltic. The fixture lists, indices, assessments and market reports issued by the Baltic are proprietary information, and any circulation of these without permission or authority, could lead to legal action being taken.- Baltic Code of Ethics

Public have an access to Baltic dry index and sub-indexes BCI, BPI… Converting TCE to $/Ton A  180,000 ton DWT Cape is earning $30,000 p/d, convert this rate to a T/C rare expressed in Dollars per DWT ton per month ? ($30,000*30.4167)/180,000 dwt= $5,06/DWT/Month Natural Hedge For Owners, comparing the Time-Charter Equivalent (TCE) with daily hire( Spot market)+ T/C daily net voyages revenues provides a very simple guideline for economics decisions. TCE= Daily hire + Time Charterer NET Voyage revenues per day.

Owner operates the Vessel himself; Daily Hire=0, Owner’s net revenues=(voyages costs p/day -operating costs p/day). If market rises, he may continue to operate vessel for own account or demand a daily hire rate exceeding the current TCE. However if he received an offer for Daily hire closed to the TCE and expected market to fall, it’s a good incentive to chartered it to someone else.

This is where Charting of the Baltic/FFAs/ and other shipping indexes comes in play. Daily Hire vs TCE  source: Dryships Inc. TCE

BCI

(Cape index)

BPI

(Panamax index)

BSI

(Supramax index)
 
SPOT 4 TCE AVG (USD)

19762

-386

12503

-228

13754

+111

 

Spot 4 TCE Average = The Average Value of the Four Main Shipping Routes applicable for each of the 3 types of Ships BDI=The Weighted Composite Index of BCI/BPI/BHMI

Conclusion

Owners can use TCEs to evaluate if it is better to out-charter his vessel or to operate it himself.

It is one of the simplest form of hedging available and one area where the technical analysis can provide guidance.

For Charterers and Owners, TCE analysis combined with technical analysis enables a better market risk assessment* for better planning decisions.

 

-The Trade Shipping and Finance Wizard

*Another robust tool used by modern risk managers is the VaR.

[1]

USG/JAPAN Panamax Index BASIS:

VESSEL MAXIMUM 15 YEARS OLD 1SB 1SP[safe berth, safe port] MISSISSIPPI RIVER NOT ABOVE BUT INCLUDING BATON ROUGE 1/2SB 1SP KASHIMA/KAGOSHIMA[Japan] meaning 1-2 SafeBerth within 1 Safeport in the Kashima – Kagoshima range. It could be 1 SP Kashima, it could be 1SP Kagoshima or 1 SP for some port in between but just one port.RANGE 11.9M SWAD [Owners guarantee vessel not to arrive with a draft excedding 11.9 m Salt Water Arrival Draft at the first disch port]

42/46,000LT [between 42,000 and 46,000 long tons] 5PCT MOLOO[ +- more or less at Owners Option] HSS [Heavy grain Sorghum and Soybeans]

FREIGHT US$ PER LT FIOST[free in out and free stowed and trimmed (loading+discharging costs)] BSS 1/1 [Basis 1 loadPort to 1 dischPort] NO COMBINATION PORT

LAYTIME: 9 WWD[9 weather working days] SHEX[sundays holidays excluded] EIU [even if used] ALL PURPOSE LAYDAYS 15DAYS FORWARD FROM DATE OF INDEX FOR 14DAYS SPREAD LAYCAN 3.75PCT TOTAL COMMISSION

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One thought on “The Baltic, Time-Charter Equivalent (TCE) and Charts explained

  1. Valid argument which forms the basis for the popularity of tc average swap products in the dry bulk market . The only provison i would include in your reasoning is the excessive shipbuilding capacity in the FE and the speed at which these days ships can be built.

    Philippe van den Abeele,
    Partner and Managing Director at Castalia Fund Management

    Like

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