Bunker Adjustment Factor (BAF)- What exactly is this?

by on 28 November 2012

This is a question that is raised by many of our clients and can be a contentious issue with some. So following is a brief rundown for you on what this surcharge comprises and why it is levied.

Unless you work for an ocean carrier, there seems to be a lot of confusion regarding BAF. Let’s explain firsltly what it is. BAF is a payment adjustment used to compensate shipping lines for fluctuating fuel costs. It takes its name from coal bunkers originally used on steamships.

We note that BAF surcharges really started to climb from 2003 onwards and this led to disputes with carriers and shippers. The EC (European Commission) called for submissions on the issue of surcharges and on 17 October 2008 the EC banned all carrier conferences. The shipping lines now set their own independant BAF rates which are monitored by the EC.

As price of crude oil is volatile, so too are BAF rates, but we must remember that although bunker fuel is a derivative of crude, it is really the “gunk” that is left after the refineries have processed the more valuable fuels from the crude source. It is thick and heavy and must be heated before it can be used in an engine. It is difficult to store and transport but is ideally suited for large marine engines. It effectively has its own unique maritime market where it is bought, sold and delivered, consequently with its own separate price index.

Hobbs Global monitors BAF surcharges as part of our standard rate negotiations with the shipping lines on your behalf. BAF is now a part of life in the shipping community and understanding it is a major component in planning costs within the supply chain.

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