Shipping Markets & Commercial Operations
Time Charter Equivalent (TCE)
Summary
Time Charter Equivalent, or TCE, restates voyage-charter earnings into a daily rate that can be compared directly with time-charter rates. It strips out voyage expenses — mainly bunkers, port costs and canal dues — which the shipowner bears under a voyage charter but not under a time charter. TCE is the standard earnings measure for spot-market employment.
Why this matters in ship finance
Without a common denominator, spot voyages and time charters cannot be compared. TCE makes them comparable, which is essential for fleet decisions, pricing and credit analysis.
The concept
A general expression is:
TCE = (voyage revenue − voyage expenses) / voyage days
Voyage days include laden and ballast time. Voyage expenses include bunker consumption, port charges and canal dues. The result is a USD-per-day earnings figure that can be benchmarked directly against a time-charter rate for a comparable vessel and route.
How it is used in practice
Owners use TCE to decide whether to accept a voyage or a time charter and to compare returns across routes and cargoes. Analysts and lenders use it to build vessel earnings assumptions in cash-flow models, to estimate contribution margin and to test coverage ratios under different market scenarios.
Worked example
A vessel earns USD 2,100,000 of voyage revenue over a 45-day round voyage. Voyage expenses total USD 720,000. TCE is (2,100,000 − 720,000) / 45 = USD 30,667 per day.
Common mistakes
- Comparing TCE across different vessel sizes or routes without adjustment.
- Excluding ballast days from the denominator, which inflates the daily rate.
- Ignoring off-hire time in monthly and annual averages.
- Treating spot TCE as a stable long-term forecast rather than a point-in-time estimate.
- Comparing gross and net TCE figures across sources without checking definitions.
How ShipFinance.ai uses this concept
The platform can compute TCE for spot voyages, blend it with time-charter income for mixed employment profiles and use the resulting daily rate as the earnings input for coverage and break-even calculations.
Key takeaways
TCE is the daily-rate equivalent of a voyage charter. It is indispensable for comparison and modelling, but only meaningful when the underlying voyage assumptions and expenses are transparent.