Worldscale Kristian R. Fuglesang Assistant Director, INTERTANKO WMU – 17 April 2009

Anti-Trust/Competition Law Compliance Statement INTERTANKO’s policy is to be firmly committed to maintaining a fair and competitive environment in the world tanker trade, and to adhering to all applicable laws which regulate INTERTANKO’s and its members’ activities in these markets. These laws include the anti-trust/competition laws which the United States, the European Union and many nations of the world have adopted to preserve the free enterprise system, promote competition and protect the public from monopolistic and other restrictive trade practices. INTERTANKO’s activities will be conducted in compliance with its Anti- trust/Competition Law Guidelines.

Worldscale – 17 April 2009, WMU Purpose of Worldscale: To enable a tanker to obtain the same net return per day at the same WS percentage regardless of the voyage actually undertaken.

Worldscale – 17 April 2009, WMU Purpose of this lecture: To outline what Worldscale is To outline what Worldscale is not Show by example how Worldscale is used

Worldscale – 17 April 2009, WMU Why use a freight scale? Standard of reference Facilitates competition Ease of conducting business Geographical options included Applies to different liquid cargo types Faster response to quotations

Worldscale – 17 April 2009, WMU Why use a freight scale? (ctd.) Standardised format Market Index System Common understanding of terminology Financial risk reduction Simplification of invoicing

Worldscale – 17 April 2009, WMU Freight Scales – History Originally, tanker fixtures had several pages of freight rates covering a large number of optional ports. Concept of freight scales developed by UK and US government during World War II i.e. more than 60 years ago Abiding principle that Owners should receive the same net daily revenue irrespective of voyage performed Subsequently further refined

Worldscale – 17 April 2009, WMU Structure of Worldscale Based around nominal trading voyages of a notional standard vessel Definitions of terms used, assumptions made and any specific applications Calculations based on the costs involved in the Standard Vessel performing a round voyage on the target voyage

Worldscale – 17 April 2009, WMU Structure of Worldscale (ctd.) Structured to give the same net daily returns for the standard vessel regardless of voyage performed at 100% of the nominal flat rate

Worldscale – 17 April 2009, WMU Produced by two non-profit making organisations aiming at independence from external bias and narrow market views –Financed through subscription –Subscribers have no formal authority, can only vote with their feet

Worldscale – 17 April 2009, WMU Worldscale schedule issued jointly: Worldscale Association (London) Limited Worldscale Association (NYC) Inc New York responsible for North, Central and South America, Caribbean Islands, Bermuda, Greenland and Hawaii London responsible for the rest of the world

Worldscale – 17 April 2009, WMU Worldscale Association (London) Limited Simpson, Spence & Young Limited H. Clarkson & Company Limited Galbraith’s Limited E.A. Gibson Shipbrokers Limited Braemar Seascope Limited ACM Shipping Limited

Worldscale – 17 April 2009, WMU Worldscale (NYC) Inc McQuilling Brokerage Partners Inc Mallory Jones Flynch & Associates Inc Odin Marine Poten & Partners Charles R. Weber Company Dietz & Associates Inc

Worldscale – 17 April 2009, WMU Worldscale – Basics 1 Constitute an Index of Reference Rates with common calculation factors Expressed in USD per tonne of cargo carried WS Schedule issued yearly in January, amended for changes to bunker prices, port charges and exchange rates Printed WS book contains 73,000 rates and web- site has over 500,000 rates Further rates available from the Associations Available on annual subscription basis only

Worldscale – 17 April 2009, WMU Worldscale – Basics 2 Amendments published when significant changes occur to port charges and are effective from a specified date Actual market rates are expressed as a percentage of the published rates e.g: W 100 = the “flat rate” as calculated and published W 40 = 40% of the published rate W 250 = 250% of published rate Market rates are determined by negotiations between the owner and charterer

Worldscale – 17 April 2009, WMU Basis of Calculation Standard vessel: –Total capacity –Speed 14.5 knots –Bunker consumption: 55t/d at sea; plus 100t/voyage, 5 t/d in port –Port time 48 hours per port for one to one voyages plus 12 hours for additional port(s) –Fixed hire element USD 12,000 per day

Worldscale – 17 April 2009, WMU Basis of Calculation ctd. Variable costs –Bunker prices: Worldwide average for 380 cst during the 12 months ending 30 September prior to Schedule effective date –Port costs: Information available up to end- September using USD exchange rates for September (to be changed from 2010) –Canal Transits: 24 hours for each Panama Canal transit 30 hours for each Suez Canal transit

Worldscale – 17 April 2009, WMU Worldscale Schedule Sections – 1 Explanatory Notes (Preamble Part A): –Definitions, –General explanations, –Basis of calculations, –Route policy/distances –Assessment of port costs –Revision policy –Trans-shipment areas

Worldscale – 17 April 2009, WMU Worldscale Schedule Sections – 2 Terms and Conditions (Preamble Part B): –Effective date (commencement of loading) –Laytime allowance –Port and Terminal Combinations –Charterers’ account items Table of demurrage rates (Preamble Part C) List of ports (Preamble Part D) –Alphabetically by port and country, –Trans-shipment areas

Worldscale – 17 April 2009, WMU Worldscale Schedule Sections – 3 Fixed differentials (not subject to percentage variations agreed) –SECAs –Canal Transit Dues –High cost items based on vessel/cargo size –USA: Additional premiums for coverage of Oil Pollution Liability Insurance on vessels carrying persistent oil to and from the USA

Worldscale – 17 April 2009, WMU Worldscale Schedule Sections – 4 Variable differentials (subject to percentage variations agreed) –Allows different cost berths in same port –Arabian Gulf, Black Sea and Lake Maracaibo Rates ‘additions’ for major loading areas allows combinations to give many more rates in book format

Worldscale – 17 April 2009, WMU Worldscale Schedule Sections – 4 Schedule of Flat Rates (W100 rates) the basic part of the calculated rates

Worldscale – 17 April 2009, WMU Extraction of a flat rate for a voyage Check relevant year Check if Arabian Gulf, Black Sea or Lake Maracaibo loading port Extract flat rates –Additions if required –Main rate part for addition –Add two parts or use Direct rate –Note any references to ‘D’ pages –Calculate any fixed differential –Apply any Charterers’ Account items –Check for circulars that apply –If in doubt, contact nearest Worldscale office

Worldscale – 17 April 2009, WMU Worldscale details Worldscale is no panacea. Essential to know limitations What does the Worldscale system not do? –Impossible to give a comprehensive list, instead some examples: Does not protect from variations in bunker prices and exchange rates Port costs assessed for the Standard Vessel – your vessel may be of totally different size, requiring different number of tugs etc.

Worldscale – 17 April 2009, WMU Worldscale details ctd. Routeing based on most economic route for Standard Vessel –Larger ship may have to take longer route –Winter storms not taken into account –IMO, littoral state regulations and published official recommendations for environmentally sensitive routeing taken into account –WS Associations will provide other relevant rates on request: Their use is dependent on agreement between the parties

Worldscale – 17 April 2009, WMU Worldscale details ctd. Retroactive port costs not reflected New port charges not yet reflected (e.g. incurred after commencement of loading) Exposure to time-based port charges (remember 48 hours basis) US Certificates of Financial Responsibility (COFRs) Seasonally incurred costs not reflected

Worldscale – 17 April 2009, WMU Worldscale details ctd. Heating of cargo not reflected Shifting costs not reflected Slop disposal and ballast reception costs not reflected Only known Security costs are reflected No allowance for Tax on Freight or Income No allowance for insurance No allowance for deviation (e.g. bunker stops, unstable situations)

Worldscale – 17 April 2009, WMU Worldscale details ctd. No allowance for effect of load line regulations on cargo capacity WS silent on cargo quantity on which freight is to be calculated –Ensure clear charterparty clause, e.g. reference to Bill of Lading quantity Inert Gas and Crude Oil Washing not reflected – for Charterparty

Worldscale – 17 April 2009, WMU Worldscale details ctd. Short voyages – weakest aspect – calculate! Multiple voyages (e.g. COAs) – consider appropriate currency and bunker adjustment clauses Rotation of ports

Worldscale – 17 April 2009, WMU Do not mix lumpsum and Worldscale!!

Worldscale – 17 April 2009, WMU Worldscale details ctd. Interpretation: –Solely the concern of the contracting parties – not the Worldscale Associations. INTERANKO has often given advice Departure from Standard terms permitted –Remember to specify in charter party! Vagueness of terms (e.g. port range)

Worldscale – 17 April 2009, WMU Thank you for your attention

Worldscale – 17 April 2009, WMU