MB Capital Strategies Glossary — Updated June 2026
Time charter is a shipping contract where the vessel owner leases the ship to a charterer for a fixed period at a daily rate — the charterer controls where it goes and pays fuel costs. Time charters provide revenue visibility (1-5 years) vs. spot voyages (single trip). For dividend investors: LNG carriers are mostly time chartered (high visibility), while product tankers mix spot and short-term TC. High TC coverage = lower earnings volatility = more predictable dividends.
Related: FLEX LNG Time Charter Portfolio
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.
| 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 |
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.
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:
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:
Charter rates vary significantly by vessel type, size, and contract duration. Here are approximate market reference levels for key vessel classes relevant to income investors in 2025–2026:
| Vessel Type | Typical TC Rate Range | Key Players |
|---|---|---|
| VLCC (crude tanker) | $35,000–$65,000/day | Nordic American, Frontline, DHT |
| Suezmax (crude tanker) | $25,000–$45,000/day | TORM, Hafnia (MR focus) |
| LNG carrier (Q-Flex/Q-Max) | $70,000–$90,000/day | FLEX LNG, Golar LNG, CoolCo |
| LPG / VLGC | $30,000–$65,000/day | Dorian LPG, BW LPG |
| MR tanker (product) | $18,000–$32,000/day | TORM, Hafnia, Scorpio |
Every quarterly earnings report from a shipping company includes a fleet deployment table. Here is what to look for:
Not all TC markets behave the same. LNG and crude oil have structurally different contract dynamics:
Crude tankers (VLCC, Suezmax) are far more spot-oriented. Most crude tanker companies maintain 10–30% TC coverage at best. The result: dividends in crude tanker companies can spike 200–300% in strong rate environments and collapse in weak ones. Income investors should model variable dividends, not fixed yields, for spot-heavy tanker stocks.
The right balance between TC and spot exposure depends on where you are in the shipping cycle and your income strategy:
Charter length varies by market conditions and sector. In the current environment:
| Sector | Typical TC Length | Investor Implication |
|---|---|---|
| LNG Carriers | 10–20 years | Bond-like income; very predictable dividends |
| Crude Tankers (VLCC) | 1–3 years (or spot) | High earnings variability; higher dividend volatility |
| Product Tankers (MR) | 3–12 months + spot mix | Medium variability; seasonally predictable |
| Dry Bulk (Capesize) | Spot-dominant | Highest earnings variability; limited dividend predictability |
FLEX LNG case study (2026): FLEX LNG operates 13 LNG carriers, all on 5–18 year TCs. Q1 2026 average remaining TC duration: ~9 years. This explains their 19 consecutive quarterly dividends without interruption — the TC structure eliminates spot market risk entirely for the duration of the contracts. See: FLEX LNG Q1 2026 Analysis → · Dayrate Explained →
Marco Bozem
Investor & Analyst | Hard Assets, Dividends, Shipping | MB Capital Strategies
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.
