Time-Charter Equivalent (TCE) Explained

TCE Is the Shipowner’s Unit of Account

Time-charter equivalent (TCE) turns every way of employing a ship into one daily earnings rate. On a single voyage at the going (spot) rate the owner pays fuel and port costs; on a time charter, a rental at fixed daily hire, the charterer does. Deducting those costs puts the two on one footing.

Frontline’s SEC-filed definition is operating revenues less voyage expenses and commission, divided by on-hire days: days available, less days out of service (off-hire). It works across crude tankers, product tankers and dry bulk.

A route index, a container freight rate and a floating LNG plant’s tariff all measure something else. Reading one of them as TCE is the commonest mistake.

Achieved TCE vs Route Benchmarks

A route benchmark says where the market is; achieved TCE is what one company earned. The Baltic Exchange publishes daily rates for standard routes such as TD3C, a very large crude carrier (VLCC) sailing from the Middle East Gulf to China.

VLCCs are the largest crude tankers, then Suezmax and LR2/Aframax; MR and Handymax are smaller product tankers; Capesize are the largest dry bulk ships.

The worked examples use mid-cycle marks: VLCC $45,000/day, Suezmax $35,000/day, Capesize $22,000/day, MR product $22,000/day, and $2,200/FEU (per forty-foot container) on the Drewry World Container Index. They are demonstration prices, not forecasts. Valuation work, including net asset value (fleet market value less net debt), uses mid-cycle marks because benchmarks spike: in June 2026 TD3C touched ~$400,700/day on a geopolitical shock.

What Is Not TCE

ZIM and Golar LNG report something else; Danaos reports true TCE on a different kind of book.

ZIM is a container liner, selling space to cargo owners. About 87.5% of its vessels are chartered in (~86.4% of capacity in TEU, twenty-foot containers), and the hire it owes shipowners dominates its balance sheet. It reports an average freight rate of $1,551/TEU for FY2025 on 707,528 TEU of capacity; owner-style TCE does not apply.

Golar LNG runs floating plants that liquefy gas at sea. At 31 December 2025 it had two, the Hilli (2.45 MTPA, million tonnes a year, 100% owned) and the Gimi (2.7 MTPA, 70% owned), plus one MKII unit under conversion. Having left LNG-carrier shipping, it earns liquefaction fees and disclosed no fleet TCE for FY2025.

Danaos rents its containerships to liners on multi-year charters and also owns 10 Capesize bulkers. Its table figures are genuine owner TCE, on rates contracted years ahead, so they change only as charters roll over.

Worked Mini-Example: VLCC Margin at Mid-Cycle TCE

An owner’s costs are largely fixed, so a small move in TCE moves profit a lot. Take a hypothetical owner of 10 VLCCs. Cash breakeven is the daily TCE that covers running costs, interest and debt repayments.

Margin per vessel per day: $45,000 − $24,000 = $21,000/day.

Across the fleet, per year:

350 days × $21,000 × 10 = $73.5m

Frontline’s FY2025 VLCC figure of $47,200/day, less its forward breakeven estimate of $25,000/day (disclosed 27 February 2026), leaves $22,200/day. The breakeven covers opex, dry docks (the periodic out-of-water overhaul), interest, scheduled loan repayments and G&A, so the margin is what is left for dividends and growth. A 10% fall in TCE ($4,720/day) removes about a fifth of it.

Reading TCE in Filings

Before comparing owners, ask how each fleet was employed. Is the average spot-weighted, as at Frontline and Scorpio Tankers, or charter-weighted, as at Danaos? Then split by class: Frontline reports VLCC, Suezmax and LR2; Scorpio reports LR2, MR and Handymax. Check off-hire and dry-docking, because on-hire days are the denominator.

Use route benchmarks for the market’s direction only. Carry spike TCE into dividend capacity or a broker’s NAV without normalising it, and value is overstated.