Worldscale Flat Rates to Fall Again
The concept of Worldscale is not an easy principle to grasp, particularly for those outside the tanker industry, says Weekly Tanker Market Report by Gibson.
The task gets even more complicated as Worldscale flat rates are reset at the start of each year due to fluctuations in international bunker prices, exchange rates and port costs.
On long haul routes, bunkers form the most significant component of all voyage costs and as such, major fluctuations in bunker prices could lead to a sizable change in WS flat rates (WS100).
The picture is somewhat different for the short haul voyages. The shorter the distance, the less important the volatility in oil and bunker prices is; equally, this also means increased significance ofchanges in exchange rates.
One of the most extreme examples of that is the benchmark Aframax trade from Sullom Voe to Wilhelmshaven (TD7). On this very short haul route port expenses account for approximately 75% of total voyage expenditure.
The weakness in oil and bunker prices observed over the past 11 months relative to the previous year will be reflected in 2017 Worldscale flat rates.
The bunker component that goes into the flat rate formula is based on prices between October 2015 and September 2016. As such, we already have nearly all the data that will go into the 2017 calculations.
Taking into account the actual bunker assessments since October 2015 and the latest bunker forward curve, international bunker prices (that will be used to set 2017 Worldscale flat rates) are expected to be around 40% lower compared to the corresponding period a year earlier.
This suggests that WS100 in 2017 will fall by around 21-24% on long haul routes and by 10-15% on short haul trades.
