A voyage rate pays a lump sum to carry a cargo from A to B. A time charter pays a daily rate for the use of the vessel. Owners need to compare the two, and charterers need to know whether a voyage rate is generous, so the market converts voyage economics into a daily figure: the time charter equivalent.

The calculation takes the voyage revenue, subtracts the voyage costs the owner bears (principally fuel, port charges and canal dues), and divides by the total days the voyage occupies including the ballast leg back toward the next loading area.

TCE = (voyage revenue - voyage costs) / total voyage days

voyage revenue: freight earned, from the Worldscale rate and cargo size
voyage costs: bunkers, port charges, canal dues
total voyage days: laden days plus ballast days plus port time

The ballast leg is in the denominator and earns nothing. Route economics therefore depend on what cargo is available at the discharge end.

The ballast leg is the part that surprises people and the part that drives most of the interesting behaviour. A vessel discharging in a region with no outbound cargo has to sail empty to wherever the next cargo is, and those days count against the voyage. So two routes with identical laden economics can have very different TCE depending on the return-cargo availability, and a shift in trade patterns that leaves ships in the wrong place raises effective freight without any change in headline rates.

TCE matters to a crude desk because it is the number that determines whether tonnage stays in a trade. When TCE on a route falls below operating cost, owners redeploy elsewhere, tonnage leaves, and the route's rate has to rise. It is the supply-side mechanism behind freight rate cycles, and it operates on a timescale of weeks.

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Route rates with TCE indications where the publisher provides them.