Freight rates & the shipping market: how pricing works

Built for the people who quote and pay freight: charterers, owners, traders, cargo owners and analysts who need to know whether a number is cheap or dear. Shipping pricing hides behind jargon — $/tonne, TCE, Worldscale flat, "the Cape index," FFAs — and the explanations are scattered across broker reports and exchange methodology PDFs. We assembled how freight is quoted, benchmarked and read, with the indices and the maths, into one reference.

The rynda voyage-economics calculator turns any freight number into a TCE per day — the only figure that lets you compare a voyage rate to a time-charter rate to the market.

📖 See also: How to charter a ship · Ship types & sizes · Laytime & demurrage reference

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Contents

• At a glance
• The three ways freight is quoted
• TCE — the number that makes rates comparable
• Worldscale — how tanker freight is quoted
• The Baltic indices
• Dry bulk benchmarks in detail
• Tanker benchmarks in detail
• FFAs — trading and hedging freight
• What moves freight rates
• How to read the market
• Price it on rynda
• For developers
• FAQ
• References

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At a glance

The short version, if you read nothing else:

• Freight is quoted three ways: $ per tonne (voyage), $ per day (time charter / hire), and lumpsum (a fixed total). They are not directly comparable until you convert to TCE.
• TCE (Time Charter Equivalent) is the universal yardstick: voyage revenue minus voyage costs (bunkers, port, canals), divided by voyage days = $/day. Every rate, from any market, collapses to this to be compared.
• Tankers are quoted in Worldscale, a percentage of a published "flat rate" (WS100) for each route — so "WS 120" means 120 % of that route's flat rate, not a dollar figure you can read directly.
• The Baltic Dry Index (BDI) is the headline dry-bulk benchmark — a blend of Capesize (40 %) + Panamax (30 %) + Supramax (30 %) time-charter route baskets, published daily by the Baltic Exchange in London. Handysize (BHSI) is published separately.
• Tanker markets have their own Baltic indices: BDTI (dirty/crude) and BCTI (clean/products).
• Freight is volatile and cyclical — driven by the tug-of-war between tonne-mile demand (cargo tonnes × the distance they move) and fleet supply, plus fuel, congestion, weather and geopolitics. A rate is only "high" relative to the index and the owner's daily cost.

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The three ways freight is quoted

The trap: a "$18/tonne" voyage rate and a "$14,500/day" time-charter rate describe the same ship in the same market but can't be compared as written — one bundles voyage costs, the other doesn't. You convert both to TCE/day to see which is better. That conversion is the single most important skill in freight.

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TCE — the number that makes rates comparable

Time Charter Equivalent restates a voyage's earnings as a daily rate an owner actually keeps:

TCE ($/day) = ( Gross freight − commissions − Voyage costs ) / Voyage duration (days)

  Voyage costs = bunkers + port charges + canal dues + (EU ETS / FuelEU)
  Voyage duration = laden days (carrying cargo) + ballast days (sailing empty to
                    reposition) + port days

  Commissions (brokerage + address) are a cost — deducted from freight, never added back.

Why it rules the market:

• It lets an owner compare a voyage fixture against taking a time charter against laying the ship up — all in $/day.
• It exposes the effect of bunker prices, speed, and waiting that a headline $/tonne hides. A great-looking freight rate with a long ballast leg and expensive fuel can be a poor TCE.
• Indices quote it: the Baltic dry route assessments and the "5TC"/"4TC" basket averages (the average of a class's 5 or 4 benchmark time-charter routes) are TCE $/day figures.
• It counts demurrage as revenue, not only cost: on a voyage charter, time the charterer overruns in port is an owner earning that lifts TCE — the mirror image of the charterer's demurrage exposure.

A worked feel: a Panamax fixed at $20/t on 70,000 t earns $1.4 m gross freight. Take out ~$55k commission (1.25 % brokerage + 2.5 % address) and voyage costs of ~$520k bunkers + ~$180k ports, over a 40-day round voyage (≈ 18 laden + 16 ballast + 6 in port):

TCE ≈ ( $1.40m − $0.055m − $0.70m ) / 40 days ≈ $16,100/day

That's the number to compare against the Baltic Panamax index — not the $20/t headline. Model your own in the voyage-economics calculator.

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Worldscale — how tanker freight is quoted

Tanker freight isn't quoted in $/tonne. It's quoted in Worldscale points — a percentage of a flat rate the Worldscale Association publishes annually for every tanker route:

• WS100 ("Worldscale flat") = the published nominal $/tonne for that specific route, calculated from a standard vessel, standard costs and a notional daily hire.
• A fixture at "WS 120" means 120 % of that route's flat rate; "WS 85" means 85 % of it.
• The flat rates are recalculated each year to reflect bunker prices, port costs and canal dues — so the same WS number can mean a different $/tonne year to year.

Why the industry uses it: it lets one percentage express the freight market across hundreds of routes with wildly different distances and costs. A trader says "Ras Tanura–Chiba is WS 55" and everyone knows the market level without reciting dollars. To get to money, you multiply WS points × the route's flat rate — and then, as always, convert to TCE to compare.

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The Baltic indices

The Baltic Exchange (London) publishes the reference benchmarks, built from daily rate assessments submitted by a panel of member shipbrokers. The headline dry index and its family:

The BDI is a blend of the Capesize, Panamax and Supramax route baskets (Capesize weighted ~40 %, Panamax ~30 %, Supramax ~30 %). It is published as dimensionless index points (via a multiplier on the underlying TCE averages), not a $/day rate — so the BDI number itself isn't a hire you can quote. It's a derived number — you can't fix a ship "at the BDI," but it's the single most-watched pulse of dry-bulk demand, and (because bulk moves the world's raw materials) a widely cited leading indicator for global trade.

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Dry bulk benchmarks in detail

• Each sub-index (BCI/BPI/BSI/BHSI) is an average of several named routes — e.g. a Capesize China–Brazil iron-ore round, a Panamax trans-Atlantic grain round — each assessed daily by brokers.
• The routes are quoted as TCE $/day (and some as $/tonne), so the index is already in the comparable unit.
• A "5TC" or "4TC" figure is the average of that class's time-charter routes — the number owners and charterers actually reference for period fixtures.
• Watch spreads, not just levels: when Capesize rates blow out above Panamax, it signals iron-ore/coal strength; when the classes converge, minor bulks are carrying the market.

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Tanker benchmarks in detail

• BDTI (dirty) tracks crude and fuel-oil routes — VLCC, Suezmax, Aframax — quoted in Worldscale and converted to TCE.
• BCTI (clean) tracks product routes — LR2, LR1, MR — likewise.
• Because tankers quote in WS, the flat-rate reset each January shifts the WS-to-dollars translation even in a flat market — always price WS against the current year's flat and then to TCE.
• Tanker rates are famously spiky: thin fleet slack means a small demand shock (a refinery run-up, a route lengthening around a chokepoint) can double rates in weeks.

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FFAs — trading and hedging freight

Freight is a tradable, hedgeable price, not just a spot cost:

• FFAs (Forward Freight Agreements) are cash-settled derivatives on a future freight index level — settled against the average of a Baltic route/basket over a month or quarter.
• Owners sell FFAs to lock in future earnings; charterers/traders buy to cap future freight cost; speculators take a view on the cycle.
• They let a physical player fix their TCE forward without fixing a physical ship — decoupling the freight-price risk from the operational decision.

You don't need to trade FFAs to benefit from the signal: the shape of the forward curve tells you where the market thinks rates are going. When forward quarters trade above spot the curve is in contango (market expects strengthening — an owner may prefer to stay spot or fix short); when they trade below spot it's in backwardation (market expects softening — an owner may lock in a longer period). Either way it informs whether to fix long or stay spot.

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What moves freight rates

Freight is the price where demand for cargo movement meets supply of ships. The main drivers:

The recurring insight: distance is demand. A reroute that adds sea-days can lift rates as much as new cargo, because it soaks up ships.

The flip side sits on the supply of your ship: an empty ballast leg to reposition is pure cost, so owners chase triangulation (a paying backhaul cargo on the return instead of ballasting home). A well-triangulated round can lift a ship's realised TCE far above the headline route rate — which is why owners value cargoes that fit a return leg, not just the outbound fixture.

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How to read the market

A practical routine before you fix:

1. Find the class benchmark. For dry bulk, the relevant sub-index (BCI/BPI/BSI/BHSI) and its 4TC/5TC. For tankers, the BDTI/BCTI route in WS.
2. Convert your fixture to TCE. Put the $/tonne or WS number, your route, speed, bunkers and port costs through the voyage-economics calculator.
3. Compare TCE to the index. Above the class TCE? A strong fixture. Below? Ask why — long ballast, expensive fuel, waiting.
4. Check the spread and the curve. Is your class strong or weak vs its neighbours? Does the FFA curve say rates rise or fall?
5. Layer the costs the headline hides. Demurrage exposure (laytime reference), EU carbon, canal dues — all land in TCE.

A rate is never "good" in the abstract. It's good relative to the index, your daily cost, and the alternative (time charter or idle).

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Price it on rynda

• Every rate → TCE: the voyage-economics calculator converts a voyage rate (or a WS number) into TCE $/day including bunkers, port costs, canals and EU carbon — the comparable figure.
• See live supply and demand: the cargo board and tonnage board show what cargo and ships are actually on offer — the micro-market behind the macro index.
• Model the downside: stress demurrage in the demurrage calculator before it eats the TCE you just calculated.

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For developers

The TCE engine behind this article is also a public, no-auth API — and a ready-made LLM tool.

• Call it. POST /api/maritime-calc/tool/estimate_voyage_tce takes the voyage (vessel, legs, cargo, bunker prices, commercial terms and optional EU-carbon overlays) and returns the full P&L and headline TCE under result:

curl -X POST https://rynda.io/api/maritime-calc/tool/estimate_voyage_tce \
  -H 'Content-Type: application/json' \
  -d @voyage.json
# → { "result": { … TCE $/day, gross TCE, voyage P&L, bunker cost, CO₂ … } }

• Discover the schema. GET /api/maritime-calc/tools returns the typed, described tool registry (Anthropic tool-use shape) for both maritime calculators — every field documented.
• Hand it to an assistant. The OpenAPI 3.1 spec at GET /api/maritime-calc/openapi imports straight into a ChatGPT custom GPT (Actions → "Import from URL") or an MCP server, so a question like "what TCE does a Santos→Qingdao Panamax make at $18/t?" is answered by rynda's own engine.

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FAQ and common confusions

Q: Is the Baltic Dry Index a price I can fix at?
A: No — it's a derived blend of Capesize/Panamax/Supramax route baskets. You fix at a route rate, not "at the BDI." The index is a market pulse, not a fixture level.

Q: What does "WS 120" actually cost?
A: 120 % of that route's Worldscale flat rate ($/tonne), which Worldscale republishes yearly. Multiply WS points × the current flat, then convert to TCE to compare.

Q: How do I compare a $/tonne voyage rate to a $/day time-charter rate?
A: Convert the voyage to TCE $/day (revenue − voyage costs, ÷ voyage days). Now both are $/day and directly comparable.

Q: Why did my WS number buy less this year at the same level?
A: The flat rate was reset (usually every January) for bunker/port/canal cost changes. Same WS %, different underlying $/tonne.

Q: Capesize rates spiked but Panamax didn't — what does that tell me?
A: Strength concentrated in iron ore / coal (Capesize cargoes) rather than grain/minor bulks. Watching the spread between classes reveals which trades are driving the market.

Q: What's a "4TC" / "5TC"?
A: The average of a class's time-charter routes (four or five basket routes) in TCE $/day — the headline number owners and charterers reference for that class.

Q: Do I need to trade FFAs?
A: No — but the FFA forward curve is free information on where the market expects rates to go, useful for deciding whether to fix long or stay spot.

Q: Why are tanker rates so much spikier than bulk?
A: Thinner effective spare capacity — a small demand shock or a route lengthening around a chokepoint removes ships fast, and rates can multiply in weeks.

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References

• Baltic Exchange — index methodology (BDI, BCI, BPI, BSI, BHSI, BDTI, BCTI) and route definitions.
• Worldscale Association — annual flat-rate schedule and methodology.
• Baltic Exchange / brokers — FFA settlement and forward-curve data.
• Clarksons, banks and broker research — supply/demand and cycle analysis.
• rynda voyage-economics calculator, cargo and tonnage boards.

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Document version

• 2026-07 — first public version. How freight is quoted (per-tonne, lumpsum, hire, Worldscale), TCE conversion, the Baltic dry and tanker indices, FFAs and the drivers of the cycle, in one frame. Index levels move daily; the mechanics don't.