Worldscale Association (London) Worldscale Association (London) LimitedLimited 11

WORLDSCALE WORLDSCALE

New Worldwide Tanker New Worldwide Tanker Nominal Freight ScaleNominal Freight Scale

Structure and UsesStructure and Uses

Worldscale Association (London) Worldscale Association (London) LimitedLimited 22

IntroductionIntroduction

• Standard cost for carrying oil between ports Standard cost for carrying oil between ports on standard vessel to standard formulaon standard vessel to standard formula

• NOMINAL basis to standardise format and NOMINAL basis to standardise format and applicationapplication

• Incorporates all costs, directly where possibleIncorporates all costs, directly where possible• Otherwise by Fixed or Variable Differentials Otherwise by Fixed or Variable Differentials

or Charterers’ Accountor Charterers’ Account• Clear instructions as to basisClear instructions as to basis• Neutral to market, run by non-profit, non-Neutral to market, run by non-profit, non-

shareholding, middle-man structuresshareholding, middle-man structures

Worldscale Association (London) Worldscale Association (London) LimitedLimited 33

Freight Scales - HistoryFreight Scales - History

• Concept of freight schedules is more Concept of freight schedules is more than 60 years oldthan 60 years old

• Originated in WW2 by UK and US Originated in WW2 by UK and US governmentsgovernments

• Abiding principal is that Owners Abiding principal is that Owners should receive the same net daily should receive the same net daily revenue irrespective of voyage revenue irrespective of voyage performedperformed

Worldscale Association (London) Worldscale Association (London) LimitedLimited 44

Structure of WorldscaleStructure of Worldscale

• Based around nominal trading voyages of Based around nominal trading voyages of a notional standard vessel.a notional standard vessel.

• Definitions of terms used, assumptions Definitions of terms used, assumptions made and any specific applications.made and any specific applications.

• Calculations based on the costs involved Calculations based on the costs involved in the Standard Vessel performing a round in the Standard Vessel performing a round voyage on the target voyage.voyage on the target voyage.

Worldscale Association (London) Worldscale Association (London) LimitedLimited 55

Structure of WorldscaleStructure of Worldscale

• Structured to give the same net daily Structured to give the same net daily returns for the standard vessel returns for the standard vessel regardless of voyage performed at regardless of voyage performed at 100% of the nominal freight rate.100% of the nominal freight rate.

• Produced by two non-profit making Produced by two non-profit making organisations ensuring independence organisations ensuring independence from external bias and narrow from external bias and narrow market views.market views.

Worldscale Association (London) Worldscale Association (London) LimitedLimited 66

Worldscale Association (London) Worldscale Association (London)

LimitedLimited • Simpson, Spence & Young LimitedSimpson, Spence & Young Limited

• H. Clarkson & Company LimitedH. Clarkson & Company Limited

• Galbraith’s LimitedGalbraith’s Limited

• E.A.Gibson Shipbrokers LimitedE.A.Gibson Shipbrokers Limited

• Braemar Seascope LimitedBraemar Seascope Limited

• ACM Shipping LimitedACM Shipping Limited

Worldscale Association (London) Worldscale Association (London) LimitedLimited 77

Worldscale Association (NYC) Worldscale Association (NYC) IncInc

• McQuilling Brokerage Partners IncMcQuilling Brokerage Partners Inc

• Mallory Jones Lynch Flynn & Mallory Jones Lynch Flynn & Associates IncAssociates Inc

• Odin MarineOdin Marine

• Poten & Partners IncPoten & Partners Inc

• Charles R. Weber CompanyCharles R. Weber Company

• Dietz & Associates IncDietz & Associates Inc

Worldscale Association (London) Worldscale Association (London) LimitedLimited 88

WORLDSCALE – Basics 1WORLDSCALE – Basics 1

• Constitutes an Index of Reference Rates with Constitutes an Index of Reference Rates with common calculation factorscommon calculation factors

• Expressed in USD per Tonne of Cargo CarriedExpressed in USD per Tonne of Cargo Carried

• Updated in January each year for changes to Updated in January each year for changes to bunker prices, port charges and exchange ratesbunker prices, port charges and exchange rates

• Worldscale book contains 50,000 rates and Worldscale book contains 50,000 rates and web-site has over 300,000 rates web-site has over 300,000 rates

• Further rates available from the AssociationsFurther rates available from the Associations

• Available on annual subscription basis onlyAvailable on annual subscription basis only

Worldscale Association (London) Worldscale Association (London) LimitedLimited 99

WORLDSCALE – Basics 2WORLDSCALE – Basics 2

• Amendments published when significant Amendments published when significant changes occur to port charges and are changes occur to port charges and are effective from a specified dateeffective from a specified date

• Actual market rates are expressed as a Actual market rates are expressed as a percentage of the published rates by percentage of the published rates by common agreement of userscommon agreement of users

• Market rates are determined by Market rates are determined by negotiation between the owner and negotiation between the owner and charterercharterer

Worldscale Association (London) Worldscale Association (London) LimitedLimited 1010

Why use a freight scale?Why use a freight scale?

• Standard of ReferenceStandard of Reference

• Ease of conducting Ease of conducting businessbusiness

• Geographical options Geographical options includedincluded

• Applies to different Applies to different cargo typescargo types

• Faster response to Faster response to quotationsquotations

• Standardised formatStandardised format• Market Index Market Index

SystemSystem• Common Common

Understanding of Understanding of terminologyterminology

• Financial risk Financial risk reductionreduction

• Freight invoicing Freight invoicing simplifiedsimplified

Worldscale Association (London) Worldscale Association (London) LimitedLimited 1111

Reasons to use - PhysicalReasons to use - Physical

• Standard reference systemStandard reference system

• Provides market index systemProvides market index system

• Freight payment mechanismFreight payment mechanism

• Negotiating toolNegotiating tool

• Settlement toolSettlement tool

Worldscale Association (London) Worldscale Association (London) LimitedLimited 1212

Reasons to use - OtherReasons to use - Other

• Statistical - Market AnalysisStatistical - Market Analysis

- Comparative Trends- Comparative Trends

• Fiscal - AFRA OutputFiscal - AFRA Output

- Transfer Pricing- Transfer Pricing

- Contract Pricing - Contract Pricing

• Freight Futures – Settlement RatesFreight Futures – Settlement Rates

Worldscale Association (London) Worldscale Association (London) LimitedLimited 1313

Subscribers to WorldscaleSubscribers to Worldscale

20102010 20112011 20122012 20132013 20142014

LondoLondonn

722722 727727 728728 722722 691*691*

New New YorkYork

181181 182182 175175 173173 165*165*

Includes: Owners, Charterers, Traders, Oil Includes: Owners, Charterers, Traders, Oil Companies, Government departments, Banks, Companies, Government departments, Banks, Futures traders, Lawyers, P&I companies, etc, etcFutures traders, Lawyers, P&I companies, etc, etc

Worldscale Association (London) Worldscale Association (London) LimitedLimited 1414

Market Penetration – Spot Market Penetration – Spot FixturesFixtures

20102010 20112011 20122012 20132013 20142014

Non Non WSWS

22412241 24622462 28442844 27772777 862*862*

WSWS 1140511405 1223412234 1301713017 1396213962 3929*3929*

% WS% WS 8484 8383 8282 8383 82*82*

Source: Clarkson ResearchSource: Clarkson Research

Worldscale Association (London) Worldscale Association (London) LimitedLimited 1515

ECA Bunkers – Current BasisECA Bunkers – Current Basis

• Reflect additional cost of Low Reflect additional cost of Low Sulphur/Gasoil in ECAsSulphur/Gasoil in ECAs

• Cost calculated as a per mile value Cost calculated as a per mile value for each mile steamed in an ECA for each mile steamed in an ECA (Laden & Ballast)(Laden & Ballast)

• Miles steamed negotiable and Miles steamed negotiable and includes laden and ballast miles.includes laden and ballast miles.

Worldscale Association (London) Worldscale Association (London) LimitedLimited 1616

ECA Bunkers - OptionsECA Bunkers - Options

• Nothing in Scale – fully negotiableNothing in Scale – fully negotiable• Change base fuel to MGO if enough usage Change base fuel to MGO if enough usage

worldwide – not sufficient coverage currentlyworldwide – not sufficient coverage currently• Uplift in flat rates based on ECA mileages – Uplift in flat rates based on ECA mileages –

not currently technically feasible in software not currently technically feasible in software system – potential upgrade planned for 2016system – potential upgrade planned for 2016

• Fixed Differential System to cover actual Fixed Differential System to cover actual usage at local bunker rates – allows usage at local bunker rates – allows possibility of change if rapid price change on possibility of change if rapid price change on introduction of new ECA zones – current introduction of new ECA zones – current optionoption

Worldscale Association (London) Worldscale Association (London) LimitedLimited 1717

Bunker Prices - GeneralBunker Prices - General

• Current system adopted in revamp of scale in 1980’s Current system adopted in revamp of scale in 1980’s to increase transparency in relation to bunker pricesto increase transparency in relation to bunker prices

• Requested by INTERTANKO, amongst othersRequested by INTERTANKO, amongst others• Replaced opaque system of average price per Replaced opaque system of average price per

voyage of 50% of regional prices at first load and voyage of 50% of regional prices at first load and first discharge ports on voyagefirst discharge ports on voyage

• Partially solved time lag of data gathering when Partially solved time lag of data gathering when biannual publication as data used was for two biannual publication as data used was for two periods prior to current oneperiods prior to current one

• Single price published in the Schedule to allow Single price published in the Schedule to allow negotiations regarding price changes for current negotiations regarding price changes for current voyagesvoyages

Worldscale Association (London) Worldscale Association (London) LimitedLimited 1818

Drawbacks due to the loss of Drawbacks due to the loss of WorldscaleWorldscale

• No Standard of No Standard of ReferenceReference

• Ease of conducting Ease of conducting business reducedbusiness reduced

• Geographical options Geographical options unspecifiedunspecified

• Different approach for Different approach for different cargo typesdifferent cargo types

• Speed of response to Speed of response to quotations reducedquotations reduced

• No Standardised formatNo Standardised format

• No Market Index SystemNo Market Index System

• Common Understanding Common Understanding of terminology lostof terminology lost

• Financial risk increasedFinancial risk increased

• Freight invoicing less Freight invoicing less simplesimple

• Market monitoring less Market monitoring less transparenttransparent