The World is Flat

Christmas is just around the corner. If you’re a member of the Worldscale Association, Santa Claus may have already brought you a brand new blue book. The organization has released its schedule of 2012 nominal freight rates. Beginning in January these flat rates will be used as the point of reference for freight paid on various crude oil and petroleum product tanker trades. Worldscale provides a convention for negotiating freight of crude oil and refined petroleum products and an index to gauge the relative strength and volatility of the market. Annual adjustments to the flat rate underlying this metric are driven primarily by changes in port charges and bunker prices. Once again, flat rates are on the rise for 2012. In a sample of benchmark trades, 2012 flat rates averaged about 20% higher than 2011 levels reflecting the dramatic increase in fuel costs seen over the course of this year. However, more generous flat rates do not necessarily suggest that total freight paid by charterers or owners’ earnings will rise accordingly. History shows that tanker market participants will instead recalibrate their point scales at the beginning of the year to achieve their existing commercial expectations. Download here