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Friday, October 19, 2018

Worldscale – tool for tanker operators not derivatives traders

The Forward Freight Agreements (FFA) derivates trade has succeeded in getting Lloyd's List to write several articles aggressively criticising the Worldscale Associations for producing a tool which is not immediately appropriate for their derivates trade.


The articles display a remarkable lack of understanding – on the part of the derivates traders and journalists – of what Worldscale is and the purpose that it serves, as well as showing a lack of interest in learning more.


Worldscale has been designed to serve a specific purpose in the physical voyage chartering of tankers. And it serves that purpose well. It has not been designed to serve the needs of the derivatives trade.


The paper traders complain that Worldscale is too complex – but have they tried to understand it? Furthermore, they seem to imply that the producers of the Worldscale have an obligation to provide a system which can be readily used in the FFA market. Talk about the tail wagging the dog! The Worldscale system is not designed to help in the predicting of future freight rates, it is designed to provide the tanker owner with a reasonable consistency of net returns per day (i.e. freight less bunker costs, port charges and canal dues etc.) irrespective of the voyage performed, and also a means of quickly and easily comparing different voyages.


One of these Lloyd's List articles resulted in three clear ripostes.


Bengt Hermelin underlined that there is nothing enigmatic about Worldscale, it simply enables the owners and charterers to negotiate a rate without knowing the load port or the discharge port, while giving the owner a good idea of what he will earn per day and the charterer what he will pay per ton of cargo once he decides on a route. Hermelin added: "The correspondent is concerned about the service being proprietary, but you subscribe to the service while Worldscale protects the copyrights. Quite similar to a newspaper".


Iain Shaw also emphasised that the Worldscale system was never intended to serve the needs of the FFA derivates traders. "The Worldscale data base contains hundreds of thousands of rate combinations which, far from obfuscating what is happening, greatly facilitate chartering in the physical market."


Kristian Fuglesang also entered the fray and recommended anyone interested in learning more to read INTERTANKO's publication "Worldscale – a Tanker Chartering Tool."


The 8th March Lloyd's List article, the three responses mentioned above and a further 17th March Lloyd's List article can be seen HERE


Contact: Kristian R. Fuglesang