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Week 10: After Last Week’s Dip, Time Charter Rates Stabilize

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Dec. 4 2020, Updated 10:53 a.m. ET

Time charter contracts

VLCC (very large crude carrier) time charter rates were almost constant in week ten of 2016. The week saw a slight decrease in rates, but except for week ten, there hasn’t been a significant move in time charter rates in the last few weeks.

Under time charter contracts, vessels are hired for a specific period at a pre-decided daily rate. Rising time charter rates give a brighter outlook for the crude (DBO) tanker industry, and vice versa.

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Tanker companies and time charter contracts

Higher time charter rates give an opportunity for companies such as Teekay Tankers (TNK), Frontline (FRO), DHT Holdings (DHT), Tsakos Energy Navigation (TNP), and Euronav (EURN) to lock in higher rates for a longer time. Time charter contracts give a stable and predictable cash flow. Nordic American Tankers (NAT) doesn’t operate in the time charter market.

Time charter rates

Time charter rates rose significantly last year. In December 2014, VLCC time charter rates for one year were around $34,500. For three years, time charter rates were around $33,000. On March 9, 2016, the VLCC time charter rate for one year was constant at $42,500 per day from the prior week. Two-year VLCC time charter rates rose by 1%, while three-year time charter rates remained constant.

Suezmax and Aframax time charter rates also remained constant from the prior week. Suezmax showed a slight decrease in period rates for two to five years.

According to Alibra Shipping, only a few strategic fixtures concluded in week ten from negotiations that existed previously.

Forward freight agreements

A forward freight agreement (or FFA) is a forward contract used to hedge exposure to the freight market risk. These rates don’t predict future rates. However, they can be used as a tool to gauge market sentiments. The VLCC FFA rates for the second quarter of 2016 are $56,500 on March 10, according to the Gibson Tanker Report. The rates are higher compared to last week’s rate of $49,500. The Suezmax and Aframax FFA rates for the second quarter are $33,250 and $23,750 higher, respectively, compared to last week’s rates of $32,000 and $27,250 respectively.

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