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Hi. I am a shipping company director, transport academic, author, family man and all round nice guy. I have worked as shipbroker, shipowner, freight trader and bulk charterer, in senior positions, with some of the largest and most disrespected (joke) companies in the world. Ask my advice on all things shipping and you will receive my blunt and always honest answer. Hang around to learn more about chartering and ship broker salaries, chartering and ship broker jobs, chartering and shipbroker recruitment agencies, cheap freight, maritime education, chartering and ship broker qualifications, become a ship broker, tips on how to be a successful bulk shipping executive, philosophy, Zen and the art of shipbroking, and much more. Yours The Virtual Shipbroker (recently proclaimed the guru of shipbroking) Copyright © 2009-17 by Virtualshipbroker

Thursday, April 30, 2009

Shipping economics - fronthaul / backhaul

Hi All

In this blog and also in the ebooks I have deliberately steered clear of shipping economics. How are freight rates determined and how do shipowners and charterers work within the varous market segments?

Having said that here is a brief elaboration on the idea of front haul and backhaul from a shipowners persepctive. I think its a great idea to try an explain the industry a little more.

In a basic sence ships will go where there is most money to be made. There are net import regions and countries and net export regions and countries. A shipowner will judge his success on the returns of his vessel achieves not on just one voyage but over a number of voyages.

Let me explain a bit more. Lets just say that the shipowner needs to see usd 10,000 per day return, over the next 12 months, for his new ship. This means approximatley usd 3.6 mill over the course of a year. His costs will be made up of finance, running costs and accounting stuff.

On the first shipment he decides to take some coal from Australia to Rotterdam and achieves 8,000 per day. This is not great news as it is usd 2,000 below his costs...

So what happens next? after he discharges his coal in Rotterdam he has more competition for his ship. He does a short ballast to the mediteranean to load some fertilizers back to the fareast. On this leg he accepts usd 14,000 per day for his ship, a usd 4,000 per day win against his budget.

And the the good news is that overall he is still up after 2 legs. Over a 12 month period he hopes he will make money! This is the role of the shipowner.

Backhaul usually refers to legs that generally lose money. Ie a shipowner needs to take a discount in order to reposition itself for a better paying cargo. Fronthaul usually refer to the legs where shipowners can make better returns but usually end up in a less favourable area.

The best shipowners use the commodity market cycles to predict when certian load areas will be busy and not so busy, and position ships accordingly. That is not always easy!

Any questions just let me know

Yours
VS

10 comments:

  1. Thanks, so true about commodity markets. While on the topic of cycles, if you look at the TC 4 AVG CAPE & PANAMAX you can definitely see cyclical trends which are consistent year in year out.

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  2. what's front haul and back haul in shipping???

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  3. I thought that was what the post was about?

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  4. hi! thanks for very good job with the explanation of fronthaul and backhaul. I would like to ask what is the ECSA season with reference to dry-cargo shipping and when does this season end and start. Many Thanks

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  5. ECSA to Asia is considered fronthaul...atleast is has been...

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  6. Excellent blog - will definitely get the ebooks - in the meantime, can you define clarify the terms "Worldscale" and "Time Charter Equivalent" and how shipping companies derive/arrive at these figures when they report their financial results.....?

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  7. Hi - Worldscale is a tanker ship term. Not my gig! Basically its a way of pricing the ships. Time charter equivalent refers to price of a ship on a daily basis. So if a ship charged say 50 bucks per metric tonne to carry 50,000 mt of coal - that will have some kind of time charter equivalent - whihc means an equivalent daily rate which could be for example USD 10,000 per day.

    There is no way you can figure out if the Time charter equivalent rates are kosher without knowing how to do a voyage calculation and without having all the cargo and ship details. So bottom line is you need to accept what the reports are telling you.

    Hope this helps - and yes do buy my books! Keeps my children in food and clothing for another week.

    VS

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  8. DO YOU THINK THAT A VESSEL BALLASTING FROM INDIA OR PMO OR CHINA TO EAST COAST SOUTH AMERICA AND REDELIVERED IN THE CONTINENT CAN BE CONSIDERED A BACKHAUL TRIP FOR A PANAMAX VESSEL?

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  9. No, that wud be a T.a trip, trans-Atlantic trip

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