Comparing VLCC Freight Quotes on the Same Commercial Basis

Overview

The comparison should show both the agreed base cost and the conditions that can change it. It should also identify any offer that depends on a vessel, cargo, or terminal decision still outstanding.

Key takeaways

• Normalize the commercial basis before ranking offers.
• Preserve the original quoted unit beside the comparison unit.
• Separate included expenses from contingent exposures.
• Treat optional discharge rights as a feature with a defined scope.

Establish one reference voyage

Write a short reference voyage before preparing the comparison sheet. Identify the loading place, intended discharge sequence, cargo quantity and tolerance, loading window, and the party controlling each remaining option. This becomes the benchmark against which deviations are shown.

The reference should describe the business the cargo desk expects to execute. It should not quietly adopt the assumptions of the first owner to reply. If the first quote assumes a single discharge while the trading plan needs alternatives, record that limitation instead of treating all subsequent offers as expensive exceptions.

Retain a dated copy of the enquiry and each response. A quote updated after a destination change cannot fairly be compared with a quote issued before the change unless the earlier owner reconfirms. Apparent price dispersion sometimes reflects different instructions rather than different views of the same employment.

The reference voyage is also a governance tool. It gives the commercial approver a concise answer to what the team is buying. Without it, the approval may cover a headline figure while the team later discovers that the required flexibility was never included.

Understand the freight expression before converting it

An offer might use a Worldscale expression, a lump sum, or another agreed basis. Record the original wording and identify the quantity or voyage assumptions needed to express comparable base freight. Do not overwrite the original offer with a spreadsheet result that hides its conditions.

Worldscale explains that market freight levels can be expressed as a percentage of its nominal freight rate. Its methodology is a reference framework, so the relevant schedule and voyage basis matter. See Worldscale's explanation.

For a Worldscale-based quotation, obtain the applicable reference details through the authorised source and confirm the treatment of the specified voyage. For a lump-sum offer, establish what quantity and itinerary the sum covers. Do not assume a fixed sum includes every port combination or every quantity the charterer might nominate.

Where currency conversion is required for internal reporting, distinguish the reporting assumption from the contract payment currency. The comparison date and approved conversion source belong in the worksheet. Treasury or the responsible finance function should assess payment exposure; the freight comparison should not imply that a reporting conversion fixes that exposure.

Build a worksheet that preserves uncertainty

The strongest worksheet does not force every unknown into a single estimated total. It has a comparable base, an explicit list of exclusions, and a small set of conditional scenarios. This is especially useful when destination flexibility could materially alter the voyage.

Use a status column for each unresolved item: confirmed, assumed for analysis, or awaiting clarification. A blank cell should never look like a zero-cost inclusion. Where the owner has not answered, describe the unresolved issue in plain language.

The comparison can still support a decision before every scenario is priced. It may show that one offer is suitable only for the base case while another remains viable across the buyer's realistic alternatives. That difference is commercially meaningful even without pretending to know the final cost of every outcome.

Distinguish freight from delivery economics

Freight is one part of the cargo decision. The value of a discharge option may depend on the buyer's sales commitments, storage access, and ability to nominate promptly. Those considerations belong in the recommendation, but they should not be disguised as owner-quoted amounts.

Keep three categories separate: quoted freight and agreed charges; analyst assumptions about possible future events; and wider cargo economics owned by another team. The separation makes it possible to revise the recommendation when a receiver changes without rewriting the evidence behind the freight quote.

Do not assign an arbitrary premium to flexibility merely because an offer contains more options. Ask which option the trading desk might actually exercise, what decision it protects, and when its value disappears. A broad range with an early nomination deadline may be less useful than a narrower range that fits the desk's real decision timetable.

Similarly, a vessel available at the wrong time is not made competitive by an attractive indication. Include readiness and acceptance status beside cost. An unresolved issue that could prevent performance should appear near the recommendation, not buried in a footnote below the totals.

Fictional case: headline savings that remove an option

A fictional crude buyer compares two VLCC offers for delivery to its usual refinery, with a storage alternative if refinery intake changes. One offer appears lower on the initial freight comparison but permits only the refinery destination on the stated basis.

The chartering team asks for a separate storage alternative and learns that it requires fresh commercial agreement. The second offer already defines that alternative and its nomination process. Instead of declaring either owner universally cheaper, the team produces a base-case comparison and a flexibility comparison.

The cargo desk confirms that the storage decision will remain open beyond the first offer's practical commitment point. The recommendation therefore explains the value of securing a usable alternative. Management can approve the additional scope consciously, or choose the narrower offer with a clear understanding of the remaining cargo risk.

Document the recommendation for later review

A useful recommendation names the preferred offer, the reference voyage, the remaining subjects, and the reason for selection. It should identify the event that would invalidate the recommendation, such as a quantity change or the loss of a receiver option.

Retain the clarifications that supported the ranking. If a cost line relies on a negotiated interpretation, preserve the relevant correspondence for the contracting team rather than paraphrasing it as settled law. The final agreement needs its own review.

This record also improves the next fixture review. The team can distinguish a weak initial comparison from a reasonable decision affected by later events. That is more useful than judging the original choice solely by the final invoice.

Common mistakes

Comparing unlike quantities can make unit freight misleading. Another frequent error is converting a quote while leaving its port assumptions unchanged. Both problems produce precise figures that answer the wrong question.

Avoid treating unspecified expenses as included, or including the same exposure in both the base and contingency lines. Ask targeted clarification questions and retain the answers.

Do not rank offers solely by spreadsheet totals when acceptance, availability, or material subjects remain unresolved. A comparison should expose execution uncertainty as clearly as price uncertainty.

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