Spot vs Time Charter: Locking the Cycle
When a shipowner takes spot rates and when it locks in a time charter: the trade-off through the freight cycle, and what each choice does to earnings and value.
Educational analysis for professional use. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
Spot Captures the Cycle; Time Charter Locks It
Spot employment rides the freight cycle; a time charter trades the upside for a floor under revenue. On spot a ship is hired voyage by voyage at the going rate. On a time charter it is rented for a set period at fixed daily hire.
Clarksons, the shipbroker, frames the choice as flexibility and rate risk against predictability. Axarloglou, Visvikis and Zarkos (Transportation Research Part E, 2013) found the cyclical pattern: upturns favour spot; downturns favour longer time charters.
No mix suits every owner. What matters is each company’s split of fleet days between spot and charter (its days mix), and how its achieved TCE compares with mid-cycle marks.
Frontline: Spot Label, Chartered Out in the Upturn
A “spot” label does not mean zero time charters. Frontline, usually labelled a spot crude owner, owns 80 vessels and carried net debt of ~$2,816m at 31 December 2025. Its FY2025 spot averages were $39,700/day on Suezmaxes and $29,400/day on LR2s, its two smaller tanker classes.
In Q4 2025 and Q1 2026, while voyage rates were elevated, Frontline chartered out several VLCCs (very large crude carriers) for one year at rates well above mid-cycle. That is cycle locking: swapping volatile voyage earnings for fixed hire.
| Mark | VLCC $/day | Basis |
|---|---|---|
| Frontline FY2025 achieved VLCC TCE | $47,200 | Spot-weighted average |
| Frontline one-year charters, Q4 2025/Q1 2026 | $76,900–93,500 | One-year fixes |
| Mid-cycle VLCC TD3C | $45,000 | Demonstration price for models |
The fixes sit between the FY2025 average and the June 2026 spike, when TD3C (the benchmark Middle East Gulf to China VLCC route) reached ~$400,700/day. They capture part of the upturn without carrying 100% voyage exposure into a possible normalisation. Every mark in the table is far above Frontline’s forward VLCC cash breakeven of $25,000/day (disclosed 27 February 2026), the daily rate that covers running costs and debt service.
Danaos: Long Charter as the Business Model
At Danaos long charters are the whole business. At 31 December 2025 it had 85 operating vessels: 75 containerships of 477,491 TEU (twenty-foot container units) and 10 Capesize dry bulk carriers.
| Metric | Value | As-of |
|---|---|---|
| Container segment TCE | $35,892/day | FY2025 |
| Dry bulk (Capesize) TCE | $18,175/day | FY2025 |
| Average vessel opex | $6,969/vessel-day | FY2025 |
| Net debt | $140.5m | 31 Dec 2025 |
| Book equity | $3,795.6m | 31 Dec 2025 |
| Orderbook | 27 containership newbuilds + 4 Newcastlemax bulkers | 25 Feb 2026 |
Danaos’s hire is set in the containership charter market, where liners rent ships by the day. Box freight indices such as the Drewry WCI measure something else: what shippers pay liners per container. What matters at Danaos is backlog quality and the credit of the liners paying.
ZIM sits on the other side of that market, as an operator that charters in ~87.5% of its fleet and reports freight of $1,551/TEU for FY2025. Owner or operator is the first split to make, before spot versus time charter.
Golar LNG: Neither Spot nor Conventional Time Charter
Golar LNG sits outside the trade-off. It left LNG-carrier shipping in 2025 and at end-2025 ran two floating liquefaction plants (FLNG) with 5.1 MTPA (million tonnes a year) of capacity. It earns liquefaction fees and lease income and discloses no fleet TCE or per-day breakeven. Its version of locking the cycle is contract length: by August 2026 the MKII unit and the Hilli were both committed to 20-year contracts in Argentina.
Worked Mini-Example: PV of a One-Year Charter
A one-year charter at the middle of Frontline’s range locks in far more hire than a mid-cycle year. Take one VLCC:
| Input | Value |
|---|---|
| Daily hire | ($76,900 + $93,500) ÷ 2 = $85,200/day |
| On-hire days | 350 |
| Discount rate (model default) | 9.0% nominal |
| Gross charter revenue | $85,200 × 350 = $29.82m |
Discounting one year at a constant rate, PV ≈ gross revenue ÷ (1 + 9%) ≈ $27.36m per vessel, ignoring payment timing and off-hire.
The same 350 days at the mid-cycle VLCC TCE of $45,000/day earn $15.75m gross, so the charter locks in ~$14.07m more hire on one ship, before opex. At mid-cycle, against a breakeven of $24,000/day, the margin is $21,000/day ($7.35m per vessel a year). The owner gives up whatever spot would have paid above $85,200 during the year, and gets certain cash if rates fall before the charter ends.
The model applies the same 9.0% to multi-year fixed hire, such as Danaos’s containership book.
Reading Filings for Days Mix
No sector-wide rule sets the right mix; each filer discloses it differently:
- Frontline: spot averages by class for FY2025, with time-charter fixes disclosed in the quarter they are agreed.
- Danaos: charter backlog and expiry schedule in the 20-F (the annual report foreign companies file with the SEC), plus the container and bulk TCE split.
- ZIM: chartered-in share (~86.4% of TEU capacity), which measures an operator’s reliance on hired ships; there is no owner days mix to read.
- Star Bulk: 136 owned ships exposed to dry bulk spot rates, plus 7 on long-term charter in.
A mid-cycle model does not assume the June 2026 geopolitical spike lasts. The question for Frontline is how many owned days were fixed before rates normalise, and how many roll back into voyage work nearer the mid-cycle mark.
Each vessel is valued on charter income, running costs and scrap over its remaining life, summed to a fleet NAV net of debt, stressed through a freight downturn.
The Excel model is the primer's fleet NAV build live across 11 sheets: each vessel valued on its cash flows over the life it has left plus scrap, fleet NAV to equity for a spot tanker owner and a contracted lessor, an implied-multiple cross-check, a built cash breakeven, a freight-trough scenario and sensitivity grids. Change the charter rate, running costs, fleet age or debt and the NAV moves.
Frequently Asked Questions
- What is the difference between spot and time charter in shipping?
- Voyage or spot employment earns the current market rate and leaves the owner exposed to it. A time charter fixes a daily hire for a period, trading upside for predictable revenue. Clarksons frames it as flexibility against predictability. Academic work (Axarloglou, Visvikis and Zarkos, 2013) finds upturns favour spot and downturns favour longer time charters.
- Why did Frontline fix VLCC time charters above mid-cycle rates?
- In Q4 2025 and Q1 2026, with voyage rates elevated, Frontline chartered out several VLCCs (very large crude carriers) for one year at $76,900–93,500/day. The mid-cycle VLCC mark used in this guide is $45,000/day. Management locked a year of revenue well above mid-cycle.
- How does Danaos differ from a spot tanker owner?
- Danaos operates 85 vessels (75 containerships, 477,491 TEU; 10 Capesize bulkers) chartered to liners on long contracts. FY2025 TCE was $35,892/day on containerships and $18,175/day on dry bulk. Net debt was $140.5m against $3.80bn of book equity. Its cash flows are contracted, where a spot tanker owner earns whatever voyage rates pay.
- What discount rate applies to charter backlog?
- The Excel model discounts contracted charter cash flows at 9.0% nominal. It is one illustrative default for valuing fixed hire from long charter books, and it does not replace broker valuations of the fleet.