How to do a pre-voyage calculation

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Pre-voyage calculations, sometimes named voyage estimation, is an essential decision-making tool for chartering managers, shipowners, and operators, where they  estimate the profit of a specific cargo or a combination of cargoes to find the potential profits measured in USD/day or EUR/day.

USD/day = TCE (time charter equivalent).

In this blogpost we’ll walk you through the process of doing a voyage calculation. Since it is important to understand what type of risks and costs are involved in different type of pre-voyage calculations and fixtures.

In a voyage charter, a vessel is chartered (or fixed) for a single voyage or consecutive voyages, and will load a cargo in one or several ports, and transport the cargo to one or several a ports where the vessel will discharge the cargo.

Since the voyage calculations estimate the profit for one vessel loading and discharging a given cargo or several cargoes, the pre-voyage calculations help to compare the profit (USD/day) for different cargo alternatives, so you can understand which cargoes and which vessels give the best earnings.

Voyage calculations are typically used within bulk/tramp trading, and almost never for liner services. Bulk/tramp trading includes vessel segments such as dry bulk carriers, tankers, LPG and LNG. Since these segments transport cargoes that also are financial cargoes, the freight rate fluctuate from one day to another.  These type of cargoes are crude oil, oil products, iron ore, steel, gas, and aluminum.

In a voyage charter, the owner of the ship has the commercial control of the vessel and is responsible for the voyage operation and costs related to performing the voyage. Voyage related costs are such as bunkers, port charges, canal dues, extra insurances, costs related to transport the cargo from A to B.

To create accurate voyage calculations takes time, and you one can divide the process into 3 parts:

• Collect the relevant information you need
• Do the pre-voyage calculation
• Compare the profit for one combination of cargo and vessel with others

1. Collect the information you need

Start by collecting all the information about the cargo and the cargo operation;

• What type of cargo is to be shipped (coal, iron ore, crude oil, butane etc)? And then check if you have a vessel suitable for carrying such cargo.
• The size of the cargo and the stowage factor (the cubic space of one ton cargo)
• Special requirements on how to handle and store the cargo while shipped in your vessel
• In which port the cargo will load and discharge, port restrictions, port costs, loading and discharging terms and expected congestion (waiting time at an anchorage)

All cargoes have laycan (a window of dates) which means that your vessel has to arrive at the intended load port within these specific dates.

Collect information on bunker prices in different ports along your sea-route, which type (grade) of bunker is available in which ports and at which prices.

Make sure that the technical description of the vessel is correct. As a minimum you need to check the particulars that is related to the cargo:

• Summer DWT, draft and the TPC (tonnes per centimeters)
• Cubic capacity (total and in each hold/tank)
• LOA (the length overall of the vessel) and Beam.
• The year the vessel was built, as it often is an age limit on vessels
• Relevant certificates, insurance and vetting have to be in place and valid
• Speed and consumption
• The ice class the vessel has

Obtaining all this information requires considerable time and effort. However, using software like ShipIntel simplifies the process, allowing easy access to:

• Daily updated bunker prices in any port together with which bunker grade is available and at which price
• Stowage factors for most cargoes
• Vessels at anchorage, in port and vessels on their way to any of the ports and canals
• Technical description of vessels (that you can adjust and save in your private team)

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2. Do the calculation

2.1 Calculate the cost for bunkers

The sea route

One of the most important parts of a voyage calculation is choosing the optimal sea route.

Choosing the optimal sea route is influenced by many factors;

• The size of your vessel and constrains in straits, canals and ports.
• How much bunker the vessel has onboard and how much bunker you need to supply to perform the voyage, and which bunkering options there are along the sea route (the bunker prices and grades offered in ports)
• Whether there is ice along the sea route or in the ports
• Weather predictions
• Anti-piracy activities
• Congestion in the canals (Kiel, Panama and Suez)

To find distances between ports you can use voyage planning software, electronic distance tables, or you can use ShipIntel’s Sea Route Calculator to calculate the distance for any type of vessel, from their live AIS position or from port-to-port.

We have spent a considerable amount of time making as accurate sea routes as possible, also taking in consideration the trade that specific vessels (type and size) are actually doing. Though the sea-routes in ShipIntel are not meant for navigation.

An example

The distance from Houston in USG to Chiba in Japan is 15 801 nm (nautical miles) if you want to avoid all canals and go around Cape of Good Hope. If you want to go through Suez it is 14 595 nm, but you have to pay canal dues. If you want to go through Panama it is 9 263 nm but also here you have to pay canal dues.

In ShipIntel, you can toggle on and off “avoid constrains”, and if you want to add your own waypoints, you can drag the route-line as in Google maps, making it easy to tailor-made the sea route you want to perform.

ShipIntel also provides you with:

• Updated weather forecast and ice conditions
• Bunker ports along the sea route
• ECA sones and war sones and the calculated carbon emissions.

Easy to adjust and to find the tailor-made sea route for your vessels.

Calculate the time in sea

Speed affects fuel consumption, voyage duration, and cost for the consumed bunkers, so you’ll should have a software helping you to optimize the speed of the vessel during the voyage.
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In pre-voyage calculations that might not be so easy to do, so some chartering managers often prefer to add an additional sea margin of 5 to 10 percent as a safety margin for bad weather or other delays that might occur during a sea passage.

Let’s say you want to sail from Houston in USG to Chiba in Japan, you have many alternatives:

• Around the Cape of Good Hope:
  - 15 801 nm if you want to avoid all canals and.
  - At 13 knots it will take 50 days (15 801 /(24 hours x speed of the vessel)
  - At 14 knots it will take 47 days

• Through Suez
  - 14 595 nm, but you have to pay canal dues
  - At 13 knots that take 43 days
  - At 14 knots that take 43 days
• Through the Panama canal
  - 9 263 nm but you have to pay canal dues
  - At 13 knots that take 29 days
  - At 14 knots that take 27 days.

The the faster the vessel sails the more bunker she consumes, and if you want to pass Panama or Suez, you also have to pay canal dues. You can find the canal dues for different type of vessels on Leth Suez web site.

In ShipIntel’s Sea Route Calculator we also calculate the estimated time in ports and canals, so get an understanding of the time it might take to load and discharge the vessel based on historical data. So you don’t need to add a 10 % sea margin.

Calculate the time in port

In a pre-voyage calculation, you are told the applicable loading and discharging terms by the cargo owner or your broker. You are also told the notice of readiness time (NOR)  for tankers and LPG, and Turn time (TT) for dry cargo vessels. This information you add in your voyage calculations to estimate how much estimated time your vessel will spend in a port. The chartering managers often add a margin to the estimated time in port due to congestions or other unforeseen happenings.

The total duration of a voyage includes the time spent at anchorage and in port (berth) to perform cargo operations.

Congestion at port might lead to waiting times upon arrival at anchorage. In such cases, slowing down the vessel's speed could help reduce bunker costs, or if there's a tight laycan window, speeding up the vessel may be required to meet the schedule.

We will take you through how to calculate time in port for different segments below.

Laytime
Calculating exact time spent in ports takes time due to various factors influencing port time, such as cargo volume, availability of loading and discharge equipment in port, concurrent vessel arrivals, pilot service, tidal water and weather. Additionally, delays may occur if cargo isn't ready upon the vessel's arrival at the loading port. Calculating exact time is not a part of the pre-voyage calculations but are known as laytime calculations.

Calculate the estimated fuel consumption and costs

As shown above, the sea route, the speed you decide for your vessels, type of fuel, fuel consumption and bunker (fuel) prices, determine the bunker costs for the voyage. Usually fuel (bunker costs) count for 70 – 80 % of over voyage related costs for over seas voyages, while bunker costs for vessels in coastal trade counts less because they spend more time in ports and have shorter sea routes.

Type of vessel, age and size of your vessel and the trade the vessel is doing will also influence the fuel consumption and eventually the costs.

The bunker costs are dependent on:

Speed & consumption

Assume the vessel consumes:
50 mt of fuel + 2 mt HFO and 3 mt MGO  if she does 14 knots and
47 mt of fuel + 2 mt HFO and 3 mt MGO  if she does 13 knots

Type of fuel (bunkers)

The vessel migh be able to use different type of fuels for her main engine, like HFO or VLSFO. Which type of fuel to select depends on the type of engine, costs for bunkers, the availability, the carbon emissions and the tax she has to pay for the carbon emissions.

Sea route

If the selected sea route is Cape of Good Hope: 15 801 nm (nautical mile) and with 14 knots that takes 47 days.

Bunker prices

Along this sea route you have two options to bunker the vessel without deviating too much. That is Cape Town and Singapore. So you have to check the bunker prices for both places. In ShipIntel you will find daily updated bunker prices and which bunker grades are available for all ports. The daily bunker prices are delivered by BunkerEx.

Carbon Emissions

If you want to learn how to calculate the carbon emissions you can go to these web sites:

• You also have to calculate the carbon emission for the different type of fuel. Safety4Sea has written an informative blogpost on this. ‍
• You have to add the costs for carbon emissions if your vessel is trading in waters where carbon emissions are taxed. You can read more about Carbon tax Basics at C2ES webpages.

In ShipIntel we do the calculations for carbon emission as a part of the sea route and the pre-voyage calculation.

Bunker costs and carbon emissions in sea

Based on the numbers above the bunker costs in sea will be:

• Fuel for the main engine: 47 days x 50 mt x USD/mt 644 (VLSO in Singapore) = USD 1 513 400
• Fuel for the Aux engine: 47 days x 3 mt x USD/ mt 833 (MGO in Singapore) = USD 124 950

Bunker costs and carbon emissions in ports

Vessels also consume bunkers while they stay in ports, that might be both for the main engine and the auxiliaries. Because of this you have to add the days spent in a port and multiply the bunker consumption, to find how much the vessel consume while she is in a port.

• If the vessel consumes 2 mt HFO/VLSFO for the main engine and 3 mt MGO for the auxiliaries in ports, you have to calculate the number of days in port multiply with the bunker consumptions in port and the bunker costs.
• In addition you also have to calculate the carbon emissions if the load or discharge ports are inside regions where carbon emissions are taxed.

The ShipIntel sea route calculator is made to help you do these calculations quick and accurate, so you can spend time on evaluating and compare different cargo alternatives instead of spending time on collecting and calculating.   

2.2 Calculate the Voyage-Related Costs

The total voyage related costs are

• The bunker costs to perform the voyage (as estimated above)
• Voyage related insurance
• Time and costs in canal
• Time and cost in port
  
  

To find the voyage related insurance costs you have to check with the P&I (protection and indemnity) insurance companies, the cargo owner or the agents in the ports). Voyage related insurance costs might also be applicable if you plan for your vessel to sail through war zones or arrive in a port that is inside a war zone. You can find updated war zones and anti shipping activities in ShipIntel.

To calculate the canal costs you need to ask your agent or you can calculated the costs for Panama and Suez from the Leth Suez’ website. This kind of calculator will soon also be available in the ShipIntel sea route.

To calculate time and costs in port
in a pre-voyage calculation is calculated based on cargo type and cargo quantity and the loading and discharging terms given to you from the broker and cargo owner.

For dry cargo there might be many different options but the most frequently used are: mt or per day in SHEX (Sunday and holiday excluded) of SHINC (Sunday and holiday included). If your vessel is loading 100 000 mt of coal, you first have to ask if it is SHEX or SCHINC. SHINC means that loading or discharging of the cargo take place also if your vessel arrives on a holiday. SHEX means that no cargo operation takes place if it is a Sunday or a holiday. There might be many different variations for SHEX / SHINC. To calculate the time in port if 20 000 mt SHINC you divide the cargo quantity with 20 000 and get 5 days. To calculate the time in port with 20 000 mt SHEX you divide the cargo quantity on 20 0000 mt as above, and multiply with a coefficient of 1.4, so number of days with SHEX terms are 7 days.

For tankers you have 72 hours all together for loading and discharging. So if your vessel is loading 100 000 mt crude oil you know that you have to add 72 hours (3 days) for time in ports no matter if there are many loading and discharge ports.

For LPG it is mostly number of days or hours as in tank. If your vessel is loading 35 000 mt Butane you might have to add a specific number of days given to you from the cargo owner.

To find an estimate of cost in port you can either check what you have paid for vessels in previous port calls for similar vessels, by asking your colleagues, check your company's database, or call an agent in the ports, or use a software helping you to calculate the port costs.

2.3 Calculate Expected Revenues

To estimate the revenues of a voyage you need to estimate the maximum cargo intake of the vessel, based on:

• The size of the cargo and the stowage factor
• The design of the vessel (technical descriptions)
• Port restrictions (tidal port or not)

After you have calculated the cargo intake, you have to multiply the cargo intake by the freight per ton. Let’s say you calculate that your vessel will be able to load and discharge 50 000 mt and the freight rate is USD/mt 15, the gross freight rate is 50 000 mt x 15 = USD 225 000.

Commission is the price you pay to the broker or might also be a tax the cargo owner put on the cargo. A principle in shipping is that it is always the ship owner who pays the commissions. If commission is 3,75 % you have to deduct that commission from the gross freight rate to find the net freight rate.  
The commission is a fee to the broker or it might be a tax to the cargo owner, and then it is called address commission and is money the cargo owner will keep.

3. Find the Profitability (USD/day)

The TCE (Time Charter equivalent per day) show you the profitability (earnings) to perform the voyage, and the TCE makes it easy to compare the profitability of different cargo options for one vor several vessels. TCE = USD/day

To determine the TCE for a voyage you start with the gross freight revenue, deduct the commission you pay to your broker and deduct the voyage related costs. Then get a contribution margin which you divide by the total number of days you need to perform the voyage. (Total number of days = days in sea + days in ports.)

For very small vessels in coastal trade it might be possible to discharge one cargo and pick up another cargo in the same port, but most dry cargo vessels, tankers, LPG and LNG vessels need to ballast to another port to load a cargo.

Days at sea =  total days in ballast condition (the voyage where the vessel is on her way to a port to pick up (load) a cargo) + total days in laden condition (sailing with the cargo onboard) + days spent in port for loading and discharging. So a pre-voyage calculation always starts from the port the vessel discharged the previous cargo.

By dividing the revenues minus voyage related costs with total days, you will find the TCE (time charter equivalent) or USD/day.

Chartering managers working with tankers and LPG do 2 types of pre-voyage calculations for each cargo option.

Chartering managers involved in tanker or LPG trades, also do a RV (round trip voyage calculation). Instead of including the ballast leg as described above, the time in sea = days sailing from the load port to the discharge port and back again to the loadport (round voyage) + the days in port.

This is a theoretical voyage calculation and is meant to make it easier to compare different cargo options. The round voyage is a part of the World Scale system. Here the freight rate (flat rate) per mt is multiplied with a percentage. So if the flat rate (usd per mt) is USd/mt 12,00 and WS is 120, the usd per mt is 14,4. You can read about the world scale system here.

Software for pre-voyage calculations

With the new software tools coming into the market, these theoretical voyage calculations might not be needed, as modern software like ShipIntel can calculate many cargoes and vessels and compare the TCE in seconds. In the ShipIntel pre-voyage calculation you will also get which port and at which date your vessels will be next open and ready for a new cargo.

However, we think it is important that you understand what type of risk and costs are involved in voyage calculations, and to understand how to do a voyage calculations.

That’s why we have made this blogpost.

ShipIntel: Make better decisions today with tomorrow’s maritime solution

In ShipIntel we have made a pre-voyage calculation software helping you save hours doing your daily voyage calculations without compromising on the quality and accuracy.

You can find all cargoes that are available to you in your cargo list parsed from your e-mails.

Then you can quickly add one or several cargoes to a work-space and start adding vessels. You can add the vessels from your fleet or to add market vessels, and you will find the TCE for all the relevant cargo and vessels alternatives.

Then you quickly will find the different combinations of cargoes and vessels in your workspace, and you can spend time studying the different options and find which cargo you want to give an offer on and start negotiating, and pay less focus on the cargoes you are not interested in.

If you want to study the details in the voyage calculations, just click on the box and you will find how we have done the pre-voyage calculation.  

As a modular software, ShipIntel is easy to use and super flexible; if you’re only interested in sea routes, you should check out the sea route module.  
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If you’re only want to find what’s going on in ports, you should check out the port & monitoring module.

If you want pre-voyage calculations you should check out our chartering module.

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