Worldscale rates will appear to be rising soon, but looks can be deceiving.
That’s because Worldscale rates have gone through their annual recalculation and flat rates for 2016 have dropped substantially from 2015.
“The Worldscale rates are changing mostly because of the cost of bunker fuel,” a Houston-based shipbroker said. “Every flat rate I have checked is lower than the 2015 rate because bunkers are so cheap.”
The Worldscale Association recalculates its 320,000 worldwide flat rates annually based on the average global 380 CST bunker fuel oil prices for the year ending September 30.
According to the association, global 380 CST bunker prices for the period from October 1, 2014, through September 30, 2015, fell 40.2% compared with the previous assessment period — or to $367.55/mt from $614.81/mt.
Accordingly, 2016 flat rates dropped by 20-25%, according to market sources.
The drop in flat rates leads to a rise in the Worldscale numbers, the shipbroker said.
“The new Worldscale rates will be higher than they would have been before,” he said. “So, if Worldscale 115 was done on 2016 flat rates, it would be higher than it would have been with 2015 rates.”
A clean tanker broker shared that perspective.
“Worldscale points will increase pro-rated, according to the decrease in the flat rate, most likely during the first week of January,” he said.
A shipowner agreed.
“The Worldscale points have to compensate for the flat rate,” he said.
The dirty tanker flat rate for the Caribbean-US Gulf Coast route was $9.53/mt in 2015. In 2016, that rate is $8.31/mt.
On Wednesday, the Caribbean-USGC freight rate for Panamaxes was Worldscale 115. For a shipowner to receive the same level of earnings in 2016, the rate would be Worldscale 131.9.
When new flat rates are adopted, there is a transition period, sources said.
“At the end of the year, the owner and the charterer need to agree on which rate scale to use, but the loading date is the controlling date,” a dirty tanker broker said.
The sentiment was echoed by a broker on the clean side.
“It is not like a flip of a switch,” he said. “The markets ease into it. The 2015 flat rates are used until the end of December and possibly into early January on a case-by-case basis.”