Image credit: Maersk

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Maersk Line has announced that, from January 2019, it will be implementing a new Bunker Adjustment Factor (BAF) in a move designed to help clients to predict, plan and track how changes in fuel price will impact shipping freight rates with the implementation of the 0.5 percent global cap on fuel sulphur content in 2020.

Described as being "simple and predictive", the new BAF will replace the existing Standard Bunker Factor (SBF) - which Maersk notes is based on several variable factors and "not as predictable as the new BAF" - and allow customers to simulate and calculate the BAF tariff at any fuel price for a given trade route.

"The cost of compliance with the new regulation will be significant, so the cost of shipping will increase. It is also expected that the volatility of fuel costs for shipping will increase as the regulation enters into effect," Maersk explains.

How the new BAF is calculated

Maersk's BAF tariff is designed to recover fuel-related costs. It will be charged separately from the basic ocean freight, with Maersk pointing out that the fuel cost is "a significant and volatile part of shipping costs".

The BAF is calculated by multiplying the so-called 'trade factor' by the fuel price.

The fuel price will be the same for all trades and is calculated as the average bunker price in key supply ports around the world over a period said to be "typically" three months.

The trade factor, meanwhile, reflects the average fuel consumption on a given trade as a result of variables such as transit time, fuel efficiency and trade imbalance.

The key elements of the trade factors, according to Maersk, are:

- The actual Maersk Line fuel consumption (tonne/FFE) per container moved on the trade; and

- An imbalance factor reflecting that, on some trades, there is a dominant headhaul, which will be subject to a larger share of the fuel cost changes than the backhaul.

Fuel grades

Throughout 2019, the new BAF formula will be based on the fuel price for high-sulphur IFO 380 fuel; whilst from the first quarter of 2020 onwards, the formula will be based on fuels that comply with the new 0.5 percent sulphur regulation.

Rates for reefer containers

The BAF for reefer cargo will be calculated by multiplying the BAF for standard containers (dry) with a factor of 1.5, reflecting the average electricity consumption of reefer containers.

Low-Sulphur Surcharge

Maersk says its Low-Sulphur Surcharge (LSS) will continue to run in 2019, and after 2020, as the company will continue to use fuels with a maximum sulphur content 0.1 percent in Emission Control Areas (ECAs).

Dates

The new BAF will be effective from January 1, 2019, and contracts with start date on or after this date will be subject to the new rate.

Contracts with start date before 2019 will continue to be subject to the old Standard Bunker Factor (SBF) until their expiry. From 2019 onwards, the BAF and SBF tariffs will have identical fluctuations.

BAF tariffs for the first quarter of 2019 are to be released by the end of November 2018 and reviewed quarterly. However, in 2020, Maersk says it will review and adjust the BAFs monthly if the fuel price change is more than $50 per tonne since the last adjustment.

Also, when performing the quarterly review, the BAFs will only be adjusted if the fuel price has changed by more than $10 since the last adjustment.