Worldscale - where next?

Aug 09 2018

The concept of Worldscale is not an easy principle to grasp, particularly for those outside the tanker industry.

It gets even more complicated as Worldscale flat rates are reset at the start of every year, due to fluctuations in international bunker prices, exchange rates and port costs, Gibson Shipbrokers explained.


On long haul routes, bunkers form the most significant component of all voyage costs and as such, major fluctuations in bunker prices could lead to a sizeable change in WS flat rates (WS100).


However, the picture is somewhat different for the short haul voyages. The shorter the distance, the less important the volatility in oil and bunker prices is; equally, this also means increased significance of changes in exchange rates, as this affects the USD equivalent of total port expenditure.


For example, on the benchmark Aframax trade from Ceyhan to Lavera (TD19), port expenses last year accounted for just over 50% of total voyage expenditure.


The upward trend in oil prices has continued since last year, with international bunker prices firming by around $120 per tonne since September, 2017. Robust oil demand, declining crude inventories, an ongoing fall in Venezuelan crude production and concerns about future direction in Iranian crude exports, all contributed to firmer oil prices, despite spectacular gains in US production and the recent pledge by OPEC and a number of non-OPEC countries to return their combined output to levels initially agreed in late 2016.


Next year’s bunker component that goes into the flat rate formula is based on prices between October, 2017 and September, 2018. As such, we already have the majority of the data that will go into the 2019 calculations.


Taking into account the actual bunker assessments since October, 2017 and the latest bunker forward curve, international bunker prices (that will be used to set 2019 Worldscale flat rates) are expected to be around 30% higher, compared to the corresponding period a year earlier.


This suggests that WS100 in 2019 will increase by around 15-17% on long haul routes and by 9-13% on short haul trades.


These changes will be in essence cosmetic, as increases in flat rates will be compensated by the corresponding decline in WS spot rates, without any effect on actual dollar per tonne costs.


However, the picture for the actual freight costs could be quite different from the 1st January, 2020, when the global sulfur cap on marine bunker fuels goes into effect, Gibson warned.


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