WHY TIME CHARTER EQUIVALENT (TCE) IS NOT EQUIVALENT TO TIME CHARTER HIRE Or FREIGHT IS A COMMODITY MARKET Time Charter Equivalent (TCE) Earnings The expenses of a shipping company fall into two categories. 1. The fixed daily costs: which arise every day of the year, regardless of the movement or employment of the ship, and are typically called daily costs in the shipping world. They can be listed as follows: depreciation, capital cost, crewing, technical maintenance (including dry- docking), insurance and general administrative expenses. 2. The variable costs: which are the costs related to a voyage (sailing the ship, positioning or even waiting to load or discharge a cargo). They can be listed as follows: bunker (fuel) costs, port costs (including agent costs), canal transit fees, towage and pilotage. Even though they may occur every day, they are not daily costs because they vary hugely as they relate to the service being undertaken and in particular to the fuel consumption of the service undertaken. Waiting might consume only 5 MT of bunker oil a day whilst the consumption of oil when sailing depends on whether the ship is empty (ballast) or laden (with a cargo on board), how much cargo is on board and the speed the ship is sailing. Indeed, consumption is also affected by weather conditions and currents. In ballast, at low speed, in fair weather, the consumption might be as low as 30 MT per day but laden, at high speed, in heavy weather, it could be closer to 100 MT per day. For commercial and business management purposes the variable costs of any voyage are deducted from the Freight lump sum (paid by the cargo owner) to derive a Net Freight amount because these costs are variable with the particularities of the voyage performed, i.e. cargo size, distance, number of ports, etc. The Net Freight amount can then be divided by the number of days that the voyage took to perform (including the time and voyage expenses of positioning of the ship from the last port it discharged a cargo to the port where it will take a new cargo) and this establishes a daily rate of income, which is called the Time Charter Equivalent Earnings (TCE Earnings) which is expressed in USD/day. The TCE/day formula can be expressed in the following way:   ( . .    −  )    ∗ = / *from ship leaving port after discharge previous cargo until discharge current cargo The TCE Earnings can be compared to the daily hire paid under fixed term contract which is called daily Time Charter Hire. However, although comparable, TCE Earnings are not the same as Time Charter Hire. The Time Charter Hire is a definite and certain amount that is known when the contract is signed. The TCE is a calculated number which is not known until all of the income for the voyage has been received and all of the expenses paid. Only then the expenses can be netted off from the Freight lump sum in order to arrive to the Net Freight of the voyage. The duration of the voyage is also not certain. If due to bad weather the voyage took longer than expected, the earnings will be less than expected because more bunkers will be consumed and the duration will lengthen so the Net Freight is lower and will be divided by more days. So Voyage