What it means
Shipowners earn money in different ways. In a voyage charter, the owner is paid a freight rate for a particular journey and pays the fuel, port charges and canal fees.
In a time charter, the customer hires the ship for a period and pays those costs itself, while the owner receives a daily hire rate. Because the two contracts are so different, the headline numbers cannot be compared directly.
A big freight payment on a voyage charter might look more attractive than a daily hire, but the owner has to pay for the fuel and port costs out of it. TCE solves this by converting a voyage contract into a daily figure that is comparable to a time charter rate.
To do this, the owner takes the voyage revenue and subtracts the voyage expenses, which are the costs that a time-charter customer would normally pay. These are mainly fuel (called bunkers), port charges and canal dues.
The remainder is then divided by the number of days of the voyage. For investors and lenders, TCE is the standard way to read the health of a shipping company.
Listed shipping groups report average TCE per day for each fleet segment, and it is compared with the vessels' daily running costs. If TCE is higher than running costs plus debt service, the ship is making money.
There are important nuances. TCE depends heavily on how the voyage days are counted, including waiting time and time in ballast (sailing empty to the next loading port).
Different companies may calculate it slightly differently, so the figures should be compared with care. TCE also helps with planning and forecasting, because it turns a changing set of contracts into one daily number that can be compared with the budget.
A finance team can multiply the expected TCE by the number of operating days to estimate gross earnings for the year, then deduct the running costs and financing costs to reach a rough profit figure. The same approach lets a lender test how far rates could fall before the ship stops covering its loan.
In practice
Real-world examples.
Example
A bulk carrier owner is offered either a one-year time charter at a fixed daily rate or a single voyage at a freight price. The commercial team converts the voyage offer to a TCE per day and finds it is $3,000 a day higher, which helps them decide.
Example
A shipping company listed on a stock exchange reports its quarterly results. Analysts compare the company's average TCE per day with its vessels' daily break-even level to estimate how much profit it generated.
Example
A bank lending against a tanker asks the owner to supply the vessel's TCE for the past two years. The loan officer compares the figures with the debt repayments to check the ship can comfortably cover them.
Formula
Calculation
TCE per day = (voyage revenue - voyage expenses) / voyage days
Suppose a tanker earns $1,800,000 in freight on a voyage lasting 40 days. Voyage expenses are $600,000 for bunker fuel, $120,000 for port charges and $80,000 for canal dues.
Voyage expenses = 600,000 + 120,000 + 80,000 = $800,000.
Net voyage revenue = 1,800,000 - 800,000 = $1,000,000.
TCE = 1,000,000 / 40 = $25,000 per day.
If a time charter offered $23,000 a day, the voyage would be the better choice by $2,000 a day, before considering risk and waiting time.Case study
Seen in the real world.
Seagull Bay Shipping is an illustrative, fictional owner of six medium-sized tankers. The management team was considering whether to keep its ships on long-term charters or put more of them into voyage contracts.
The finance manager calculated the TCE of recent voyage contracts and found the figure averaged $27,000 a day, against $24,000 a day on its time charters. The difference looked attractive, since $3,000 a day over 330 operating days is almost $1 million a year per ship.
However, the voyage contracts also meant more idle days waiting for cargoes, which the first calculation had not counted. After adjusting for the extra waiting, the voyage TCE fell to $24,500, so the illustrative decision was to keep most ships on time charters and put only two on the spot market.
Watch out
Common mistakes.
- Comparing a voyage freight payment directly with a daily hire rate, without converting it to TCE.
- Forgetting to include waiting days and ballast legs when counting voyage days, which overstates the daily figure.
- Comparing the TCE of two companies without checking whether they calculate it in the same way.
Questions
People also ask.
What costs are deducted to arrive at TCE?
Voyage expenses such as bunker fuel, port charges and canal dues are deducted, while the owner's running costs such as crew and maintenance are not.
Is TCE the same as profit?
No, because TCE is before the owner's operating costs, depreciation and financing costs, so it must be compared with the vessel's break-even rate.
Why do shipping companies report TCE?
It gives investors a consistent way to compare earnings across different charter types, fleets and companies.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related