Time Charter Equivalent (TCE) in Shipping Explained

Time Charter Equivalent (TCE) is a standard shipping metric that expresses a vessel’s average daily earnings in US dollars per day, calculated as voyage revenue minus voyage expenses, such as bunker fuel, port charges and canal dues, divided by the total number of voyage days, including the ballast leg, so that different charter types can be compared on one basis. It is the single number every fixture in the shipping market is ultimately judged against. A raw freight rate, whether quoted in dollars per tonne, as a Worldscale percentage, or as a lump sum, is not comparable across voyages, because it says nothing about the distance, the empty repositioning leg, the fuel burned, or the days the ship spends in port. Time-charter hire is already a daily figure. TCE converts a voyage fixture into that same daily unit, so an owner or broker can rank a spot voyage, a period charter, and two entirely different routes on one screen.

TCE is deliberately measured gross of the ship’s own running costs. Voyage costs, the fuel and the port and canal charges the charterer would pay under a time charter, are stripped out; the ship’s operating expenses (crew, maintenance, insurance, stores) and its capital costs are not. That is what makes a spot voyage’s TCE directly comparable to the hire an owner could earn by fixing the same ship on time charter, under which the owner still carries operating and capital costs while the charterer pays for the voyage. The consequence, which recurs throughout this article, is that TCE is a measure of earning power, not of profit.

This article explains what TCE is as a metric: the formula and what belongs in each part of it, how the number is read against the spot rate and against time-charter hire, why the denominator counts the ballast days, how the tanker and dry-bulk markets both report their routes in TCE terms, and how listed owners present TCE in their accounts as a non-GAAP measure. For the full operational mechanics of building a voyage estimate, the bunker legs, the consumption tables, the port disbursements and the canal economics that feed the numerator and denominator, see voyage estimation ; this page is about what the resulting number means and how to use it.

What TCE is

At its simplest, TCE answers a single question: if this voyage were instead a time charter, what daily hire would produce the same money for the owner? Martin Stopford, in the standard maritime-economics text, defines it as the spot freight rate converted into a daily hire rate for the voyage by deducting voyage costs from the gross freight and dividing by the days on the voyage, including necessary ballast time. Every element of that definition matters: it starts from the freight actually earned, removes only the voyage-specific costs, and spreads the result over every day the voyage ties up the ship.

The reason the industry standardized on this construction is comparability across a market that quotes freight in incompatible ways. A crude tanker fixture is quoted as a Worldscale percentage; a dry-bulk voyage as a lump sum or dollars per tonne; a time charter as dollars per day. None of these can be laid against the others directly. A Worldscale number cannot be compared with a dry-bulk dollars-per-tonne rate, and neither can be compared with a period hire, because they measure different things over different scopes. TCE collapses all of them to one figure, dollars per ship per day, net of the costs that differ between a voyage and a time charter. Once every option is in TCE, the owner’s decision becomes a straightforward comparison of daily numbers, adjusted for the risk and the idle time each option carries.

Because it is gross of operating cost by design, TCE is not the owner’s daily profit and should never be read as such. It sits one step above profit in the earnings stack: from TCE the owner still has to subtract the daily operating cost to reach an operating margin, and then the daily capital cost to reach a true bottom line. A ship can earn a healthy TCE and still lose money if its operating and finance costs are higher than the TCE covers. The metric’s job is narrower and more useful than a profit figure: it isolates the part of earnings that a voyage decision actually controls, the freight less the voyage costs, and puts it on the same footing as the alternative of fixing the ship away on hire.

The TCE formula

The standard broker form of the calculation is short, and the reference-only card below sets it out with its symbols.

The numerator is the voyage’s net cashflow: the gross freight, less the address and brokerage commission, less the voyage costs. The denominator is the total days the voyage occupies the ship. What goes into each is a matter of settled convention, and the conventions are worth stating precisely because a TCE is only meaningful when the reader knows how it was built.

On the cost side, voyage costs are the variable, voyage-specific outlays: bunker fuel, which is the largest and most volatile item and swings with speed and with whether the ship is laden or in ballast; port charges and disbursements, the port dues, agency, towage and pilotage at the load, discharge and any bunkering ports; and canal or strait dues, on the Suez, Panama or the Turkish Straits, assessed on tonnage. Brokerage and address commission is usually netted from the freight before the division, giving a net or “nett” freight; the Baltic Exchange’s tanker model, for instance, applies a total commission of 3.75 per cent, while an owner’s own brokerage is often nearer 1.25 per cent. Operating expenses and capital costs are excluded, for the reason already given: their exclusion is what makes the TCE comparable to a time-charter hire rate.

On the day side, the denominator counts every day of the accounting round voyage: the ballast days sailing empty to the load port, any waiting or idle days off the berth, the loading days, the laden sea passage, and the discharging days. Two further conventions are worth noting. First, where a fixture generates demurrage for time lost over the allowed laytime , that demurrage is added to revenue, and despatch, if payable, is deducted, before the TCE is struck. Second, the round-voyage basis, returning toward a load area rather than stopping at the discharge port, is the standard for spot comparison and for the Baltic assessments, because a one-way calculation that ignores the ballast reposition would flatter the earnings. The commission-aware variant of the formula, which brokers use when they want the commission explicit rather than pre-netted, writes the numerator as gross freight times one minus the commission rate, less voyage costs, over total days.

A worked example

A single illustrative fixture shows the whole chain from freight to daily number. Take a crude tanker lifting 50,000 tonnes at a freight of USD 17.50 per tonne, on a round-voyage basis, with figures chosen to be realistic rather than to describe any live market.

The result, roughly USD 15,975 per day, is the daily hire an owner would need on a time charter to make the same money on this voyage. If the ship’s operating cost were around USD 4,000 per day, the voyage’s operating margin would be about USD 11,975 per day, but the quoted TCE stays at USD 15,975, because TCE is reported gross of operating cost. For a Worldscale fixture the only change is the first line: gross freight is the cargo in tonnes multiplied by the route’s flat rate and by the agreed Worldscale percentage over 100, after which the calculation is identical. This is why a broker can read a tanker’s earnings off a Worldscale quote and a dry-bulk ship’s earnings off a dollars-per-tonne rate and end up with two numbers in the same unit.

Why the denominator is round-voyage days

The ballast leg is the single feature of TCE that newcomers most often miss, and it is the reason a voyage’s real daily earnings sit well below the figure a one-way calculation implies. A ship rarely finds its next cargo waiting at the port where it discharged the last one; more often it must sail empty, in ballast, to reach the load port. Those ballast days earn no freight, and they still burn fuel and consume time. TCE captures the leg twice over: the ballast bunkers add to the voyage costs in the numerator, and the ballast days add to the denominator. A calculation that divided the same net freight only by the laden days would report a much higher, and entirely misleading, daily figure.

The size of the effect is substantial on long-haul trades. On the benchmark VLCC route from the Middle East Gulf to China, the round-trip ballast passage back toward the loading area absorbs on the order of fifteen to twenty days into the TCE denominator. A one-way reading of the laden leg alone would overstate the daily earnings by a wide margin. This is also why the same headline freight rate produces different TCEs on different routes: a route with a long ballast reposition, or one that must transit a tolled canal on the ballast leg, carries more unpaid days and more voyage cost per laden tonne than a short round trip, and its TCE comes out lower even at an identical freight rate. A disciplined operator mitigates the drag through triangulation, finding a paying cargo for part of what would otherwise be the ballast leg, so a reported round-voyage TCE is a conservative construct that a clever commercial team can beat in practice.

The earnings stack, break-even, and what counts as a good rate

Because TCE sits above profit rather than at it, using the number well means knowing what lies below it in the ship’s earnings stack. From the daily TCE the owner subtracts the daily operating cost, the crew wages, stores, lubricants, maintenance and repair, insurance and shore management, to reach an operating margin. From that margin the owner subtracts the daily capital cost, the finance charge on the debt and the return on the equity tied up in the ship, to reach a true daily surplus or deficit. The sum of the operating and capital cost is the vessel’s daily break-even, the TCE at which the ship exactly pays its way. A TCE above break-even builds cash; a TCE below it consumes it, even though the voyage itself, judged on freight less voyage cost, may look positive.

This is why the question “what is a good TCE” has no fixed answer, and why a specific dollar figure quoted out of context tells you little. A good TCE is a relative judgment against three benchmarks at once. It must clear the ship’s own daily break-even, which differs by vessel age, financing and management. It must beat the Baltic benchmark for the segment, because an owner earning below the market average is leaving money on the table that a better commercial strategy would capture. And it must beat the owner’s next best use of the ship, above all the time-charter hire available for the same tonnage, since fixing the ship away on period is always the alternative to trading it on the spot TCE. A TCE of a given size can be excellent at the bottom of a cycle, when break-even levels and period hire have fallen, and poor at the top, when they have risen, so the same number carries opposite verdicts in different years. Rate histories are therefore drawn as TCE against the segment average or against break-even, not as bare dollar levels, because only the relative reading is informative.

The break-even frame also explains a behavior that puzzles observers during weak markets: owners continuing to trade ships at a TCE that plainly loses money after full costs. The reason is that operating cost is the near-term cash cost, while much of the capital cost is a sunk or fixed commitment that does not disappear if the ship idles. As long as the TCE covers the operating cost and makes some contribution toward the capital cost, trading the ship loses less cash than laying it up, which still incurs operating and finance costs while earning nothing. Owners therefore keep ships trading down to the operating-cost break-even, well below the full break-even, and only lay up or scrap when the TCE cannot even cover the daily running cost. The metric that frames all of these decisions is the TCE, read against the relevant break-even line rather than against zero.

TCE and vessel speed

One of the most consequential uses of TCE is as the objective a commercial operator maximizes when choosing how fast to sail, because speed moves both parts of the formula in opposite directions. Sailing faster shortens the voyage, cutting the days in the denominator and freeing the ship to earn on the next fixture sooner, which lifts the TCE. But fuel consumption rises steeply with speed, roughly with the cube of speed over the relevant range, so a faster passage burns disproportionately more bunkers, adding cost to the numerator and pulling the TCE down. The speed that maximizes TCE is the one where these two effects balance, and it is not a fixed figure: it shifts with the freight market and the bunker price.

The logic points in a clear direction as conditions change. When the market is strong and TCEs are high, the value of freeing the ship for the next high-earning voyage outweighs the extra fuel, so the profit-maximizing speed rises and owners drive ships hard. When the market is weak or bunkers are expensive, the fuel penalty of speed dominates the thin daily earnings, so the optimal speed falls and owners adopt slow steaming , sailing at reduced speed to save fuel even though the voyage takes longer. This is why the fleet visibly slows in soft markets and after bunker-price spikes, and speeds up in booms: operators are re-solving the same TCE-maximization at new prices. On a time charter the incentives split, because the charterer pays the bunkers and orders the speed while the owner is paid a fixed hire, which is exactly why time-charter fixtures carry speed and consumption warranties that hold the owner to a stated performance; on a voyage charter the owner bears the fuel and captures the speed decision, and sets it to maximize the voyage TCE. Either way, the number being optimized is the TCE, which is why it is not merely a reporting metric but the operating objective of the commercial desk.

TCE against the spot rate, the freight rate, and time-charter hire

TCE earns its central place in the market by sitting between three other numbers and reconciling them. Against the headline spot rate, whether a Worldscale percentage or a dollars-per-tonne figure, TCE adds everything the rate leaves out: it nets off the voyage costs and spreads the result over the full round voyage rather than the laden leg. Two ships fixed at the same Worldscale number, or the same rate per tonne, can end up with very different TCEs once their ballast distances, bunker prices and port times differ, so the spot rate ranks fixtures only crudely and the TCE ranks them properly.

Against the freight rate more generally, the distinction is between price and daily profitability. The freight rate is income per unit of cargo; the TCE is net income per day. The freight rate tells a charterer what the cargo will cost to move; the TCE tells the owner whether the ship is earning. They answer different questions, and confusing them, treating a high freight rate as evidence of a high TCE, is a common error that ignores the cost and time the rate says nothing about.

Against actual time-charter hire, TCE is built to be a like-for-like comparison. Both are quoted in dollars per day, both are gross of the owner’s operating cost, and under both the charterer bears the voyage costs, the bunkers, ports and canals. That symmetry is deliberate and is the whole point of the construction. It lets an owner make the fundamental commercial decision of the shipping cycle, whether to trade the ship in the spot market or fix it away on a time charter , by comparing the expected spot TCE against the hire on offer, adjusted for the risk of a soft market and for the idle days spot trading tends to carry. When spot TCEs are running above period hire, owners keep ships trading; when the market weakens and period hire looks better than the spot TCE, they fix out. The choice between the two employment modes, and the charter parties that govern each, turns on this comparison.

A short worked decision shows how the comparison is made in practice, and why the raw numbers are only the start of it. Suppose an owner can either keep a bulk carrier trading spot, where recent round-voyage TCEs have averaged around USD 18,000 per day, or fix it away for a year at a firm hire of USD 16,500 per day. On the headline figures the spot option looks better by USD 1,500 per day. But the spot number is an average that will swing with the market, it assumes the ship keeps finding cargoes with no idle days between them, and it leaves the owner exposed if the market falls. The period hire is certain, it covers every day of the year including what would otherwise be idle time, and it removes the downside. An owner who expects the market to weaken, or who needs certain cashflow to service a loan, will often fix out at the lower fixed TCE precisely because it is fixed; an owner who expects a firm market and can carry the risk keeps the ship on the higher but uncertain spot TCE. The decision is not “which number is bigger” but “which risk-adjusted TCE is better for this owner,” and the fact that both sides of it are expressed in the same daily unit is what makes the judgment possible at all.

TCE is long-established as the standard broker and analyst conversion of voyage economics into a daily hire-equivalent, and it is codified in Martin Stopford’s Maritime Economics, the standard text of the field. Its role widened as the Baltic Exchange moved to reporting dry-bulk timecharter routes in dollars per day and tanker routes on both a Worldscale and a TCE basis, which gave the market a single daily unit to trade and settle against and supported the growth of the freight-derivatives market from the late 1990s onward. The precise year each route class moved to dollars-per-day reporting is a matter for the Baltic’s historical circulars, but the direction of travel, toward TCE as the common currency of shipping earnings, is clear and is why the metric now appears everywhere from a broker’s fixture report to a listed owner’s accounts.

TCE across the market: tankers and dry bulk

Both main sectors report their routes in TCE terms, though they arrive at the number from opposite starting points. In tankers, the Baltic Exchange publishes each dirty and clean route as both a Worldscale percentage and a corresponding TCE in dollars per day, so the same route can be read as a market level against its nominal flat and as an earnings figure for a representative ship. The flagship route, TD3C, covers 270,000 tonnes of crude from Ras Tanura to Ningbo, and the Baltic’s published nett-TCE model for it uses a 3.75 per cent commission, a 5 per cent weather and sea margin, laden and ballast speeds of 13.0 and 12.5 knots, and a compliant-fuel bunker price (the model priced 380 cSt high-sulfur fuel before the 2020 global sulfur cap), with a worked round-voyage day count on the order of forty-six days. The VLCC composite TCE the market watches averages TD3C with the West Africa to China and US Gulf to China benchmarks. Because the bunker price sits on the cost side and the Worldscale flat rate is reset only once a year, the same Worldscale number yields a different TCE from one month to the next as fuel moves, which is precisely why the market ultimately trades on the TCE rather than the Worldscale level.

In dry bulk, the route assessments and the segment timecharter averages are quoted directly in dollars per day of TCE, while the headline Baltic Dry Index is an index in points built from them. Since 1 March 2018 the Baltic Dry Index has been weighted 40 per cent Capesize, 30 per cent Panamax and 30 per cent Supramax, with Handysize dropped from the headline. The segment baskets are weighted averages of defined routes on a standard vessel for each class: the Capesize 5TC on a 182,000 dwt ship, the Panamax P5TC on an 82,500 dwt ship, which replaced the earlier four-route P4TC, and the Supramax 10TC on a 63,500 dwt ship. A point of care for the reader is that the Capesize C5 route, West Australia to Qingdao, is a single route and is not the same thing as the C5TC basket, which averages several routes. One methodological contrast between the price reporters is worth knowing: the Baltic assesses actual time-charter fixtures first and converts spot voyages to TCE only when period fixtures are scarce, whereas some assessments work always from the spot voyage rate and convert it to TCE. Either way, the output is the same unit, dollars per day, which is what lets a Capesize and a VLCC be discussed in the same breath. For a reader tracking the market, the practical hierarchy is that the segment timecharter averages, the Capesize, Panamax and Supramax daily TCEs, are the earnings figures owners actually watch, while the headline Baltic Dry Index that aggregates them into a single point value is a market barometer rather than a rate anyone is paid. When a shipping headline reports the index has risen or fallen by a number of points, the earnings that moved underneath it are the segment TCEs in dollars per day.

TCE in the forward market and in ship finance

The reach of TCE extends past the physical fixture into the paper market and into the valuation of the ships themselves. Because the dry-bulk segment averages are reported in dollars per day of TCE, they can be traded forward, and the forward freight agreement market grew up around exactly these settlements. A dry-bulk FFA on a Capesize or Panamax timecharter basket settles against the average daily TCE the Baltic publishes over the contract period, so an owner worried about a soft quarter can sell forward at a fixed TCE and, if the market falls, offset the shortfall on the physical ships with the gain on the paper. Charterers and trading houses take the other side to lock in a freight cost. On the tanker side the derivatives reference the Baltic Worldscale assessments, but the economics that matter to the hedger are still the TCE, because that is what the ship actually earns. The single-unit property of TCE, dollars per day across every route and vessel size, is what makes a liquid forward market possible; a market quoted in incompatible dollars-per-tonne and Worldscale terms could not net a physical position against a paper one.

TCE also sits at the root of what a ship is worth. A vessel’s market value is, in the end, the capitalized value of the earnings it is expected to produce, and those earnings are expressed as the TCE it can command less the daily operating cost. When freight markets and their TCE benchmarks rise, secondhand ship values rise with them, often by more in percentage terms than the TCE itself, because a durable lift in daily earnings is worth many years of cashflow; when TCEs fall, values fall, and at the bottom of a cycle a ship can be worth little more than its steel. The link runs through the earnings stack described above: an asset’s value reflects the expected stream of TCE above break-even over the ship’s remaining life, discounted to today. This is why ship finance and asset valuation leans on TCE as its earnings input, why lenders test a loan against the TCE needed to service it, and why a period charter at a fixed TCE can be posted as security for financing. The same daily number that ranks a spot voyage against a hire rate also anchors the value of the ship and the credit extended against it.

Reported TCE in owners’ accounts

TCE is not only a broker’s tool; it is the headline operating metric in the financial statements of listed shipowners, where it appears as a non-GAAP, or non-IFRS, measure. At the company level the single-voyage formula generalizes: TCE revenue is total or voyage revenue less voyage expenses and commissions, and the daily TCE rate is that TCE revenue divided by the fleet’s operating days, meaning calendar days less off-hire days, rather than the days of one voyage. Owners typically split the disclosure between vessels trading in the spot market and those on fixed period charters, and often report how many forward spot days they have already covered and at what average TCE, giving investors a forward read on earnings.

A real reconciliation shows the shape of it. Okeanis Eco Tankers, in its reported results for the fourth quarter of 2025, took revenue of USD 126.85 million, deducted voyage expenses of USD 32.69 million and commissions of USD 1.26 million to reach TCE revenue of USD 92.90 million, and divided that by 1,211 operating days, being 1,288 calendar days less 77 off-hire days, to report a fleetwide daily TCE rate of USD 76,694 per day. Because TCE is non-GAAP, securities regulators require the figure to be reconciled to the nearest reported revenue line, which is exactly what that disclosure does. The reader of any such number should check the denominator, since “operating days,” “available days” and “revenue days” are defined slightly differently between companies, and a TCE is only comparable across owners when the day base is the same.

The disclosure usually goes further than a single fleet average, because investors want to see how much of the coming period’s earnings are already secured. Owners split the reported TCE between vessels trading in the spot market and those on fixed period charters, so a reader can tell how exposed the fleet is to the next turn in rates, and they commonly publish the share of the next quarter’s spot days already booked and the average TCE booked so far. A fleet with most of its days on fixed charters at a known TCE offers steady, visible earnings; a fleet trading mostly spot offers leverage to a rising market and pain in a falling one. The same daily metric therefore carries the story of both realized earnings and forward risk, which is why it is the number analysts model and the number owners lead with in an earnings call.

Limitations and common errors

The most important limitation has already been stated and bears repeating because it is so often forgotten: TCE is not profit. It is gross of operating and capital cost by design, so a positive TCE can accompany a loss-making voyage once crew, maintenance, insurance and finance are paid. TCE must always be read against the ship’s daily break-even, the sum of its operating and capital cost, to say anything about profitability.

The second limitation is that a TCE is only as comparable as its assumptions. Every quoted TCE embeds an assumed bunker price, an assumed ballast leg, and speed and consumption figures, and changing any of them moves the number even when the freight is unchanged. Two TCEs built on different bunker prices or different positioning assumptions are not measuring the same thing, and comparing them is comparing scenarios, not fixtures. The sensitivity is easy to feel: on the worked example above, adding USD 50,000 of bunker cost to the 37-day voyage lowers the TCE by roughly USD 1,350 per day while the freight rate does not move at all, and stretching the voyage from 37 to 42 days on the same cashflow drops the TCE from about USD 15,975 to about USD 14,073 per day before any operating cost. A headline freight rate can look flat while the TCE behind it erodes, which is one more reason the market judges earnings on the TCE and not the rate.

The remaining errors are matters of construction. A one-way calculation that omits the ballast days overstates earnings, sometimes badly; the round-voyage basis is the honest one. Idle and waiting days dilute a TCE and are treated inconsistently between quick screens, which often drop them, and full or reported figures, which include them, so a “TCE” quoted without its day basis is ambiguous. And a pure round-voyage figure understates what a commercial team can capture through triangulation and backhaul, so a reported TCE is a conservative benchmark rather than a ceiling. None of these caveats diminishes the metric; they are the fine print that lets it be used correctly. Read with its assumptions in view, TCE remains the one number that makes the whole market, spot and period, tanker and dry bulk, Worldscale and dollars per tonne, legible on a single scale.

Related Articles

• Voyage estimation: TCE, bunkers, and canal economics
• Worldscale
• Baltic Dry Index and freight indices
• Voyage charter party
• Time charter party
• Charter parties: voyage, time, and bareboat
• Forward freight agreements
• Tanker size classes: MR to ULCC
• Laytime
• Demurrage
• Ship finance and asset valuation