MB Capital Strategies Glossary — Updated June 2026
A time charter (TC) is a contract where a shipowner provides a vessel to a charterer for a fixed period — typically 1 to 10 years — at a predetermined daily hire rate. The shipowner receives a fixed income stream regardless of spot market fluctuations. The charterer takes control of the vessel's routing and cargo choices and pays the voyage costs (fuel, port dues). Time charters are the foundation of dividend visibility in capital-intensive shipping companies.
Time Charter vs. Spot Market
Feature
Time Charter (TC)
Spot / Voyage Charter
Duration
Fixed: 1–10+ years
Single voyage (days to weeks)
Rate
Fixed $/day (negotiated at signing)
Market rate at time of fixture
Who pays voyage costs
Charterer (bunkers, port)
Shipowner
Earnings visibility
High — locked in for contract length
None — varies daily
Upside in good markets
Capped at TC rate
Full upside
Protection in bad markets
Full downside protection
Immediate rate pressure
The TCE Rate: Normalising Across Contract Types
Because different vessels operate on different contract types, analysts use the Time-Charter Equivalent (TCE) rate to compare earnings on an apples-to-apples basis. TCE strips out voyage costs from spot earnings to arrive at a $/day net revenue figure equivalent to what a time charter earns. This is the primary earnings metric in every quarterly shipping report.
Charter coverage is the percentage of a fleet's capacity-days that are locked into fixed time-charter contracts for a given future period (e.g. next 12 months). A company with 80% charter coverage for the next year has high earnings visibility; a company with 5% coverage is fully exposed to spot market swings.
For income investors, charter coverage is one of the most important metrics to track. High coverage (70%+) means the dividend is backed by contracted cash flows. Low coverage means the dividend is a function of current spot rates — which can halve in weeks. Compare:
FLEX LNG (FLNG): ~100% TC coverage on all 13 LNG carriers, 7+ year average contract life. Dividend is among the most predictable in shipping.
TORM (TRMD): ~15–25% TC coverage; fleet is predominantly spot. High dividends in good markets, variable in bad ones.
Nordic American Tankers (NAT): Essentially 0% TC; fully spot-exposed VLCC fleet. Pure rate play.
Practical Example — Reading Charter Data from Earnings:
FLEX LNG Q4 2025 earnings release states: "Average TC rate: $86,200/day; average remaining TC tenor: 6.8 years." This means the fleet is earning a fixed $86,200/day through 2032 on average. At ~13 vessels × $86,200/day × 365 days ≈ $409m annual revenue locked in. This is the number that underwrites the $3.75/share annual dividend. The investor's job is not to predict spot LNG rates but to track whether these charters roll off smoothly or at lower rates.
When Companies Use Time Charters Strategically
Shipping management teams face a constant trade-off: lock in a good rate now (TC) or bet on the spot market staying strong. Marco's observation across multiple cycles:
Smart operators TC out at cycle peaks — locking in $80,000/day VLCC rates in 2022–23 before spot collapsed.
Aggressive spot bets work great in up-cycles but destroy capital when rates collapse 60–70%.
Balanced fleets (40–60% TC + 40–60% spot) provide dividend visibility plus upside participation — this is often the best risk-adjusted structure for income investors.
Marco analyses commodity and dividend stocks with a focus on shipping, mining and energy. All analyses are based on publicly available annual reports and his own assessment. Not investment advice.
