← Business Models: Industry Specific (Infrastructure, Transport & Utilities) (all topics)
Spot vs time charter
What it is
A spot or voyage charter hires a vessel for a single journey at prevailing rates; a time charter hires it for a fixed period at an agreed daily rate. Spot captures market upside and downside immediately; time charter fixes income and transfers rate risk to the charterer
The mix is the central portfolio decision for a shipowner
Impact on industries
- Spot exposure captures freight spikes, and shipping cycles produce extraordinary returns in tight markets that time charters would forgo
- Time charter cover provides cash flow certainty that supports debt service through downturns, which is what keeps owners solvent across cycles
- Spot-heavy fleets can swing from exceptional profit to cash loss within quarters, since costs are fixed and rates are not
- Owners typically adjust the mix counter-cyclically, locking in charters near peaks and running spot when rates are depressed - timing that is easy to describe and hard to execute