SUBSCRIBER NOTE: Platts clarifies methodology on using ECA charges in tanker assessments

Following market feedback, Platts clarifies its methodology for normalizing the value of spot fixtures in the clean and dirty tanker markets which are used in its assessments, when those spot fixtures include ECA (Emission Control Area) charges based on the use of 0.1% sulfur fuels in the Baltic and North Sea.

Platts tanker assessments currently do not reflect additional costs associated with using low sulfur fuels in those ECA zones, as clarified in subscriber notes published by Platts in October and December 2014.

Higher charges associated with moving ships into and out of ECA zones in 2015 have affected the Worldscale freight rates traded in the spot market for some tanker routes, including some which Platts uses as a base for two of its clean tanker assessments, namely the Baltic-UK Continent assessment, basis 30,000 mt and the UKC-UKC assessment, basis 22,000 mt.

These assessments appear in Platts Global Alert page 1910, in the Clean Tankerwire and in the Platts price database under the codes TCAFL00 and PFALY00, respectively.

Since the start of the year, the prevalent method to account for ECA charges on these routes in particular has been for charterers to compensate shipowners for ECA expenses in the form of a higher Worldscale rate, which is then inclusive of ECA charges.

Platts editors normalize such ECA-inclusive rates to reflect non-ECA inclusive values, in line with existing Platts methodology. This normalization is based on calculations similar to the example of a Primorsk-Amsterdam voyage calculation shown below.

The prevailing differential between ECA-inclusive and non-inclusive Worldscale multipliers is checked daily, and rates are adjusted accordingly as the spread fluctuates.

As an example: on January 23, 2015, Platts assessed the difference in value for ECA-inclusive and non-ECA inclusive rates for the Baltic-UK Continent route, basis 30,000 mt, at w23 based on prevailing market indications. The route was assessed on a non-ECA inclusive basis at w210 on the day. To generate an ECA-inclusive value, the cargo size would be multiplied by the Worldscale flat rate of $9.86/mt (Great Belt/Sound routing) and spot market multiplier of 210%. This gives a lumpsum of $621,180. On top of that, the Worldscale ECA fixed differential of $48.35/mile is multiplied by the distance between the two ports of 1,405.5 miles, producing a figure of $67,956.

Adding the two values together comes to a total of $689,136. This could be divided by the cargo size and multiplied by the Worldscale flat rate of $9.86/mt to produce a multiplier of 232.9%, or an ECA-inclusive rate of w233.

The difference between the ECA-inclusive and non-ECA inclusive rate is therefore w23.

Platts is currently researching the possibility of adjusting its freight assessment methodology to reflect ECA-inclusive Worldscale rates and would welcome feedback and suggestions from the market.

Please send all comments or questions to tankers@platts.com and pricegroup@platts.com.

For written comments, please provide a clear indication if comments are not intended for publication by Platts for public viewing. Platts will consider all comments received and will make comments not marked as confidential available upon request.