Overview
This analysis concerns a vessel employment model. It should not be added automatically to a cargo buyer's inclusive freight quotation or presented as a new payment obligation. Define the perspective before choosing the quantities, prices and duration used in the calculation.
Key takeaways
- State where the employment model starts and ends.
- Keep repositioning fuel and time inside the boundary when that employment is being assessed.
- Change price on a consistent quantity basis to isolate sensitivity.
- Distinguish a daily contribution measure from accounting profit.
- Do not treat a modelled fuel increase as automatically recoverable freight.
Choose the employment boundary first
The model may assess a single laden movement, a complete employment cycle or a sequence ending at an expected next loading position. Each can be useful, but they answer different questions. Define the boundary.
If the commercial question concerns the full employment needed to earn a cargo's revenue, excluding the associated repositioning can distort the comparison. If the question concerns a forward choice after some employment has already occurred, historical costs may be common to the remaining options. The correct boundary depends on the decision stage.
Avoid switching boundaries between the base and stress cases. A fuel-price sensitivity should hold the employment proposition constant unless the purpose is explicitly to test a changed itinerary. Otherwise, the reported difference combines price and scope changes.
Use appropriately supplied fuel quantities for each component. The commercial model should not derive operating consumption from a vessel label or instruct a technical change to achieve a desired financial result. Where an estimate is unavailable, show the missing input and its consequence.
Explain what the daily measure includes
The Baltic's tanker TCE methodology deducts fuel and voyage costs from gross freight and divides by total voyage duration. Baltic Guide to Market Benchmarks
For an internal analysis, specify the revenue and expense definitions rather than assuming every reader uses the same measure. A contribution after selected voyage costs is not necessarily accounting profit or cash available for distribution. Other costs can remain outside its stated boundary.
The duration denominator deserves the same attention as the fuel numerator. Excluding repositioning days while retaining the revenue from the full employment makes the resulting daily figure answer a narrower question. It should not be compared directly with a complete-cycle result.
Where the model includes expected next employment, distinguish a defined commitment from a speculative opportunity. Do not use uncertain future revenue to offset a confirmed fuel cost without showing its status. The comparison should remain reproducible from the actual assumptions.
Calculate a consistent price sensitivity
The example below uses invented quantities, prices and durations to illustrate model boundaries. It is not a vessel performance estimate or a current Atlantic market assessment.
ILLUSTRATIVE: A fictional employment model earns gross revenue of $1,200,000 and includes $180,000 of other specified voyage expenses. Its fuel quantities are 500 tonnes for laden employment, 300 tonnes for repositioning and 100 tonnes for other included employment, totalling 900 tonnes. Total duration is 30 days.
At $600 per tonne, fuel costs $540,000. The contribution after the included expenses is $480,000, equivalent to $16,000 per day. At $660 per tonne, fuel costs $594,000 and the contribution becomes $426,000, or $14,200 per day. The price change reduces the total contribution by $54,000 and the daily result by $1,800.
Now consider an incomplete version that omits the 300 tonnes of repositioning fuel and ten repositioning days. At the original price, it uses 600 tonnes costing $360,000 and a 20-day denominator. It reports $660,000 after the remaining included expenses, or $33,000 per day. That figure does not describe the same employment boundary as the $16,000 result.
| Fictional model | Fuel amount | Included duration | Daily contribution |
|---|---|---|---|
| Complete base at $600 per tonne | $540,000 | 30 days | $16,000 |
| Complete stress at $660 per tonne | $594,000 | 30 days | $14,200 |
| Incomplete base omitting repositioning | $360,000 | 20 days | $33,000 |
The incomplete figure is not corrected by calling it conservative or optimistic. It measures a different scope. If that narrower scope serves a legitimate decision, label it accordingly and avoid presenting it as the return on the complete employment.
Interpret the price effect without changing the story
The complete example isolates a price effect because quantity and duration remain unchanged. If the destination, waiting assumption or next employment position changes, rebuild the quantity and time components and show those effects separately.
A longer modelled employment can reduce the daily result even where gross revenue is unchanged. Additional fuel may reduce the numerator while extra days increase the denominator. A comparison that discusses only the fuel bill can therefore miss a material part of the daily performance change.
Conversely, a lower daily figure does not necessarily imply a lower total contribution. Different employment durations can produce different relationships between total and daily results. Present both where management is choosing between propositions with materially different time commitments.
The decision should use the measure suited to the objective. A desk assessing a particular cargo's total contribution may prioritise the monetary amount, while a desk allocating vessel employment also needs the time commitment. Neither measure should quietly replace the other.
A fuel-boundary checklist
| Model item | Question to resolve | Error it prevents |
|---|---|---|
| Starting position | What employment precedes the laden cargo? | Omitting relevant repositioning |
| Ending position | Where does the assessed cycle finish? | Stopping the model before its commercial boundary |
| Fuel components | Which supplied quantities belong to each stage? | Applying one incomplete total to the full cycle |
| Price basis | Is the same price assumption used consistently? | Mixing purchase history with a comparison reference |
| Duration | Do included days match included costs and revenue? | Inflated or incomparable daily results |
| Other expenses | What remains outside the contribution measure? | Mislabeling the result as complete profit |
Check the employment boundary before refining the price assumption.
Connect the result to an actual commercial choice
A sensitivity can identify how much fuel-price movement the proposed employment can absorb before a stated internal contribution objective is missed. That objective is a management assumption, not an external market fact. Explain its scope and avoid presenting it as a universal acceptable return.
If the result is unattractive, the commercial alternatives may include a different cargo opportunity, revised destination or different employment sequence, subject to appropriate feasibility assessment. The model does not authorise technical operating changes.
Where a freight agreement contains a fuel adjustment, calculate that expression separately. It may not match the internal quantity or price basis. Check the current text before describing the modelled fuel difference as an amount recoverable from a counterparty.
Fictional case: comparing unlike daily results
A fictional operator compares two Atlantic cargo opportunities. One worksheet includes the complete employment cycle, while the other ends at discharge and excludes the subsequent repositioning assumed in the first. The second reports a much stronger daily result.
The analyst aligns both boundaries with the actual employment decision and obtains the relevant quantity and duration estimates. The revised comparison still may favour the second cargo, but the apparent advantage is smaller and has an understandable basis.
Management receives both total contribution and daily contribution under the same fuel-price scenarios. It can now assess the trade-off between monetary return and committed time without mistaking an omitted component for superior commercial performance.
Common mistakes
Omitting repositioning fuel while assessing complete employment understates the cost boundary. Omitting the associated days compounds the distortion in a daily measure. Another error is changing the itinerary between price scenarios and attributing the whole result to fuel prices. Finally, do not call a selected-cost contribution accounting profit or present it as an automatic contractual fuel adjustment.
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Educational information only; not legal, financial or trading advice. Contract wording and applicable rules control. Verify current requirements and obtain qualified advice before acting.
Frequently asked questions
Must every calculation include repositioning?
Include it when it belongs to the stated decision boundary. A narrower model can be useful, but it must be labelled and compared with an equivalent scope.
Why show total and daily contribution together?
They answer different questions. Total contribution measures the monetary result within the boundary; the daily measure relates that result to the included time commitment.
Can the fuel-price stress change quantity too?
It can model a combined scenario, but then separate the quantity and price effects. Do not describe the entire change as price-only sensitivity.
Is the fuel increase recoverable from the charterer?
That depends on the applicable arrangement. The internal model alone does not establish an entitlement or payment obligation.