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Tanker freight

Worldscale explained

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A tanker fixture (an agreed charter) is reported as "WS 92.5". The figure has no currency, no unit and no quantity. It is a percentage of a separately published rate for that exact voyage, and the published rate changes every January. Almost everything confusing about tanker freight comes from those two facts.

What the schedule actually is

Worldscale is a nominal freight scale for tankers, meaning a set of reference rates rather than real prices. Worldscale Association (London) Ltd produces it for most of the world, and Worldscale Association (NYC) Inc for the Americas. Each November the associations publish a new schedule of rates, which applies from 1 January to 31 December of the following year. The schedule gives a rate in US dollars per tonne for thousands of individual voyages between named loading and discharging terminals. That rate is Worldscale 100 for that voyage, and the trade calls it the flat rate, or simply the flat.

The flats are not forecasts of what freight will cost. They are calculated for one imaginary ship, the standard vessel, using the same set of assumptions everywhere: a stated service speed, a stated number of days in port, a full cargo, and a stated basis for fuel price, port charges and canal tolls. The schedule is built so that the standard vessel, fixed at exactly WS 100, would earn the same theoretical daily return on every route in the book, whether the route is a two-day coastal trip or a loaded voyage halfway round the world.

The arithmetic

Once you have the flat, the calculation takes one line and does not depend on the size of the ship:

Freight (USD)  =  Quantity (mt)  x  Flat rate (USD/mt)  x  Points / 100

  80,000 mt cargo
  Flat rate for the voyage       12.00 /mt   (illustrative, not a schedule figure)
  Fixed at                       WS 92.5

  80,000 x 12.00 x 0.925  =  888,000

That is the whole conversion. The flat must come from the schedule for the specific load and discharge terminals, not for the region and not for a similar voyage.

Why the convention is still used

It is still used because it solves a real problem. Imagine an oil charterer with a dozen cargoes moving from several load areas to several discharge areas. Offers quoted in dollars per tonne cannot be compared, because the voyages are different lengths, so the numbers differ and do not show which owner is asking for more. Quoted in points, every offer is measured against the same standard, and a chartering manager can look down a list of WS numbers and see where the market is strong.

It also makes long-term contracts possible to write. A contract of affreightment (an agreement to carry a set volume of cargo over a period) fixed at a percentage of Worldscale changes its price automatically when the new schedule starts, because the flat is rebuilt on that year's port costs and fuel assumptions. Neither side has to reopen the contract to deal with rising costs.

The mistake almost everyone makes once

The flat rate resets on 1 January, and the points move to make up for it. If the new year's schedule raises the flat on a route because fuel and port costs went up, the same real freight becomes a lower WS number. Nothing happened in the market. Only the base of the percentage changed.

So a WS quote from December and a WS quote from January are measured on two different scales, and you must not compare them directly. Every year a report somewhere says the tanker market fell sharply over the new year when it did not fall at all. The correct comparison converts both quotes to dollars per tonne or, better, to a daily figure.

The second mistake is the same one made across routes instead of across years. WS 280 on a short voyage is not "twice as good" as WS 140 on a long one, because the two are percentages of different flats. Short voyages regularly trade at high point numbers and long voyages at low ones, and that pattern comes from the way the flats are built, not from the market.

Points are a quoting convention, not an earnings measure

No owner decides on points. The offer is converted to gross freight, the voyage costs are taken off, and the result is divided by the number of voyage days to give a time charter equivalent, which is a daily earnings figure. That daily number is what gets compared with the last fixture, with a period rate and with the ship's breakeven. The Baltic Exchange publishes its tanker route assessments on both bases for exactly this reason: the market talks in points but decides on the daily figure.

The conversion is also where the standard vessel assumption is no longer useful, because the schedule's ship is not your ship. A modern fuel-efficient tanker and a twenty-year-old one fixed at the same WS number on the same route earn very different daily amounts, since their fuel bills and speeds differ. The flat rate makes the voyage comparable, never the vessel.

What Worldscale does not cover

Reading a tanker report properly

Three questions turn a WS number into useful information. Which route exactly, because the flat belongs to one voyage? Which schedule year, because the base resets? And what quantity, because the freight is the product of all three, and a charterer's option on quantity changes the money before the rate does? A report that gives the points but leaves out the route has given you a number, but nothing useful about the market.

References

Tanker sizesHandy to ULCC: where the tanker size bands sit, and why the coating and the last three cargoes decide suitability, not the deadweight. Aframax vs SuezmaxTwo crude tanker classes, one named after a rate scale and one after a canal. Cargo sizes, routes, and where the published ranges disagree. Time charter equivalentFreight per tonne cannot be compared with hire per day until you divide it by the voyage. This is the arithmetic that does it. Freight markets and the Baltic indicesThe BDI is a panel of brokers' judgement on set routes, not a price anyone paid. What it is for, and what it cannot tell you about your ship. Bunker pricing and hedgingFuel is usually the largest single voyage cost, and the only one priced in a market that moves every day. Where the price comes from, and three ways to fix it.

Neptune Atlas

A Worldscale quote has to become a rate per tonne before it can be estimated, and the flat rate for the route is not something Neptune Atlas holds. The estimator does the half after that: freight, bunkers, port costs and days into one daily figure. Every paid plan starts with 7 free days. A card is needed to start them, and cancelling before they end costs nothing.

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