MULTI-YEAR TIME CHARTERS AS FUTURE REVENUE PREDICTORS.

Several public shipping companies recently announced multi-year time charters of bulk carriers at very attractive rates.  This information was noted by equity analysts and the implications of the future revenue flows were integrated into their recommendations.

How dependable is this future revenue flow?  Well, it all depends.  If the freight market stays at the present level then the revenue will be assured.  But if the strongly cyclical freight market falls, as eventually it will, then nothing is assured.

If the freight market falls significantly, charterers will ask to renegotiate current charters.  Perhaps a lower rate for a longer period will be offered.  Owners are not obliged to accommodate charterers, but often will out of self-interest.  First-class owners and first-class charterers need each other and cannot afford to alienate each other.

While future revenue from signed time charters may appear to be certain, it should probably be reagrded as an upper limit and heavily discounted.