The Bunker Adjustment Factor (BAF) or Surcharge Clauses? Carriers' fuel cost recovery methods lack transparency, shipper survey reveals 02 Oct 2018. Bunker adjustment factor, bunker surcharge or BAF refers to floating part of sea freight charges which represents additions due to oil prices. When bunker prices significantly fluctuate, a carrier’s ability to offer its customers a stable base freight rate is reduced. (d) Disposal of Non-Compliant Fuel - In respect of Non-Compliant Fuel, if any, which needs to be discharged from the Vessel in accordance with sub-clause … Topics. Markets will likely adjust in line with carriers’ obligations to purchase more expensive low-sulphur fuel. Bunker Non-Lien Clause for Time Charter Parties 2014: Bunkers, Time charter Bunker Price Adjustment Clause 2004: Bunkers, Voyage charter, Contracts of afreightment Bunker Quality and Liability Clause 2011: Time charter, Bunkers With the price of bunker fuel typically a key cost driver in vessel operation, this is an unsatisfactory scenario for carriers. In such instances, utilising the IFO 380 CST Singapore price may in fact be more appropriate. It applies to contracts with validity longer than 3 months. IMO 2020 aims to reduce the global sulphur cap for marine fuels from 3.5% to 0.5% from 1 January 2020. BAF clauses are often found in voyage charterparties and contracts of affreightment. Advertisement. As previously communicated, our revised Bunker Adjustment Factor (BAF) is designed to adjust contract rates within the duration of a contract, based on fluctuations in fuel-related costs. Bunker Clause: A bunker adjustment shall apply if the cost of Marine Gas Oil exceeds 300.00 per metric ton as per Platts Bunkerwire (Antwerp prices) last issued not less than one (1) working day prior commencement of loading. for example, including Bunker Adjustment Factor clauses. CABAF - Currency and bunker adjustment factor surcharge applied by some shipping lines, and set by some liner conferences on behalf of their members, which consists of a currency adjustment factor and a bunker adjustment factor combined. In 2019, we have used the fuel price for high-sulphur fuel (3.5% sulphur) to calculate the BAF. The European Commission banned Carrier Conferences as of October 17, 2008. The availability of standard specification of compliant fuels or fuel blends in the period immediately prior to and following the implementation is currently unclear. BAF represents the floating price level of fuel in ocean freight shipping and is typically updated on a quarterly basis. Some shipping companies are finding it a struggle to explain to their customers that they need to review existing bunker adjustment factor (BAF) clauses, or add other forms of surcharges, because of tightening sulphur limits. (d) In the event that part of the multimodal transport is a shipment to or from the USA and the damage to or loss of the Goods occurs at the time between the loading at the port of loading and the discharging at the port of discharge, US COGSA shall apply. The charterer/seller may therefore wish to pass on any increased costs of transporting its cargo to the cargo buyers under the CIF sale contract. Contact Michele White. “The Freight Rate is based on Platts Bunker FO 380 CST dlvd Singapore. Whilst parties’ relative bargaining powers will determine the extent to which carriers may pass on these additional costs to their customers, BAF clauses are malleable and can be drafted to suit the wants and needs of the parties involved and are therefore a viable device. In the shipping world we hear the bunker term a lot as it is one of the main costs that the carriers incur. Once bunker tanks are fit in accordance with sub-clause (c)(ii), no Non-Compliant Fuel shall be loaded into such bunker tanks. Bunker adjustment factor clauses. Low sulphur surcharges originate from an International Maritime Organization (IMO) initiative to reduce the amount of sulfuric fuel emissions burned by ocean vessels. The potential role of Bunker Adjustment Factor (BAF) clauses’ role When bunker prices significantly fluctuate, a carrier’s ability to offer its customers a stable base freight rate is reduced. The latter are expected to be used in the vast majority of vessels following implementation1. Should you have any questions, please do not hesitate to contact the author of this briefing, which was first publish by ADM Investor Services International Limited in The Ghost in the Machine publication. We have been involved in drafting BAF (Bunker Adjustment Factor) clauses which serve to adjust voyage charter freight rates to take into account the possibility that high sulphur fuels may be burned where Owners have such liberty under the charter to burn them. The rate is similar between carriers, and until recently, they struck the same rate. This may be achieved through the use of back-to- back BAF clauses. Bunker adjustment factor clauses Other provisions provide for freight to be adjusted where bunker prices go above or below certain parameters. Advertisement. General Counsel & Company Secretary e: michele.white@intertanko.com t: +44 20 7977 7038 It applies to contracts with validity longer than 3 months. They will not track the present pricing reality at the time the bunkers are purchased or stemmed. bunker tanks. To find out more, visit our dedicated Covid-19 hub. Whereas today ships can use fuel with up to 3.5% sulphur content (outside Emission Control Areas), the new global sulphur cap will be 0.5%. Download VCard, © Holman Fenwick Willan LLP 2020. Actualité de l'Union TLF, TLF est la première organisation professionnelle représentative des métiers de la chaîne du transport de marchandises et de la logistique There will be no negative Currency Adjustment Factor. Other potential drafting issues or anomalies stand out: no provision is made for an index more closely aligning with ultra low sulphur fuel oil (i.e., with a maximum sulphur content of 0.1%) as would be required to be burned in Emission Control Areas (ECA). BAF clauses help carriers hedge against the risk of bunker price volatility. If parties wish to track actual bunker costs during the voyage more closely, they should consider incorporating Bunker Escalation and De-Escalation clauses. Maersk Line says it will introduce a new bunker adjustment factor (BAF) charge designed to recover increases in fuel related costs associated with the upcoming “IMO 2020” global 0.50% sulfur cap on marine fuel.. BAF (Bunker adjustment factor) - A clause which stipulates that the freight rate is predicated upon bunkers being at a particular market price and if the cost of bunkers goes up (down), there is an associated increase (decrease) in freight. Berth Standard of Average Cause - Clause in a Charter-Party setting out the contribution to be made by the charterer to any claim for loss or damage to cargo for which the shipowner is liable. lated in Clause 5 (1) (c) above, Clause 5 (1) (c) applies. The current Bunker Clause will be renewed on the 1st January 2020, same date as the IMO world sulphur cap is introduced. Bunker adjustment factor clauses Other provisions provide for freight to be adjusted where bunker prices go above or below certain parameters. BAF clauses typically track against prices fixed on a passed date (the bill of lading date in the clause above). PBCs act as a replacement for the current Bunker Adjustment Factor (BAF) system, along with any other Low Sulphur Surcharge (LSS) and Marine Fuel Recovery (MFR) mechanisms. The BAF is generally adjusted each quarter, but a special clause now enables Maersk to extraordinarily raise the BAF now. For each USD 10.00 per metric ton or fraction thereof increase on the said fuel price there is … On 1 January 2015, the EU Sulphur Directive 2012/33/EU brought about a major reduction in sulphur dioxide emission from ships, and that will heavily impact shipping in northern Europe. There is an increasing demand for so-called bunker adjustment factor clauses in contracts now, says law firm Rajah & Tann More contracts factoring in bunker adjustments :: Lloyd's List We use cookies to improve your website experience. New Bunker Adjustment Factor (BAF) Dear customer, From 1st January 2020, a new regulation will come into force to reduce air pollution from ships globally. Parties’ respective bargaining positions determines the exact drafting of BAF clauses, which will determine the indices to be utilised, degree of any adjustment to be applied and how and when the adjustment computation is to be carried out. Compared to the other petroleum products, it is crude and highly polluting. An alternative index to IFO 380, such as Platts FOB Singapore Gasoil, would more likely align with IMO 2020-compliant fuel pricing. Marine Gas Oil Bunker Adjustment Factor. New Bunker Adjustment Factor (BAF) Dear customer, From 1stJanuary 2020, a new regulation will come into force to reduce air pollution from ships globally. Ils s’interrogent en outre sur la possible intégration de ce coût variable dans le taux de fret global selon le type de contrat passé : contrat-spot et contrats-cadres à terme avec BAF (Bunker Adjustment Factor) flottante, all-in censés protégés de toutes surcharges supplémentaires ou sans BAF flottante ni clause all-in. The major bunker price reporting agencies only recently started to publish assessments for 0.5% low sulphur grades. The BRF (Bunker Restoration Factor) formula and the BRF table will remain unchanged, substituting only the current reference to IFO380 (high sulphur oil) with a reference to Ultra Low Sulphur Oil (SECA-zone-legal-and-compliant fuel). With more than 90% of global trade of physical goods being transported by sea, its consequences are far reaching across the shipping industry. Also, no provision is made for the burning of high sulphur fuel where owners are at liberty to use scrubbers at their own discretion. New rules on 1 January 2015. The BAF rate is a non-negotiable pass-through charge. cadres à terme avec BAF (Bunker Adjustment Factor) flottante, all-in censés protégés de toutes surcharges supplémentaires ou sans BAF flottante ni clause all-in. “La BAF permet de prendre en compte les fluctuations du coût du carburant dans les contrats à terme. 509977). Bunker Adjustment Factor Tips: Smaller charges like this can add confusion, so smaller customers usually receive or should ask for, an all-inclusive port to port charge. They will be closely monitored by the EC to ensure that no collusion is taking place. It will be charged separately from Maersk Line’s freight rate and introduced from January 1, 2019. Conversely, if the Singapore spot price was US$290/mt, then the agreed charter freight rate would decrease by US$1.25. Bill of Lading to Order - Bill of Lading which requires an endorsement by a consignee before goods can be delivered to him by the carrying ship. TRADE ADVISORY ON BUNKER ADJUSTMENT FACTOR 2nd UPDATE This is a follow-up on our BAF announcement that was shared on 20th November 2018. Charterers and shipowners can use bunker adjustment factor (BAF) clauses to manage rising fuel cost and the possible volatility in prices due to the 2020 sulphur limit. These are particularly useful where it is difficult to nominate suitable indices (not least where one is dealing with different blends of fuels stemmed on board with broad pricing variances) and where pricing movements are uncertain/volatile. In this article, BIMCO provides an overview of potential solutions. The BIMCO clauses 2020 Marine Fuel Sulphur Content Clause for Time Charter Parties (a) For the purpose of this Clause, “Sulphur Content Requirements” means any sulphur content and related requirements as stipulated in MARPOL Annex VI (as amended from time to time) and/or by any other applicable lawful authority. New Bunker Adjustment Factor . [1] BAF charges used to be determined by Carrier Conferences to be applicable for a certain period on a certain trade route. Question marks also exist regarding the extent to which refineries will prioritise the production of low sulphur fuels, and logistical or capacity constraints at various ports or supply terminals – particularly during the early days of implementation. Bunker adjustment factor, bunker surcharge or BAF refers to floating part of sea freight charges which represents additions due to oil prices. Update on Bunker Adjustment Factor (BAF) As previously communicated, our revised Bunker Adjustment Factor (BAF) is designed to adjust contract rates within the duration of a contract, based on fluctuations in fuel-related costs. The Bunker Adjustment Factor is applicable for all services and will be updated on a monthly basis according to the matrix within this document. Bunker fuel started to be used in the shipping industry increasingly in the 1950’s as it is the primary power source for the vessel engine. BAF charges used to be determined by Carrier Conferences to be applicable for a certain period on a certain trade route. Fluctuations in oil prices will alter rates depending on any of a wide variation in applications... Online Business Dictionary: bunker adjustment factor, https://en.wikipedia.org/w/index.php?title=Bunker_adjustment_factor&oldid=927264975, Creative Commons Attribution-ShareAlike License, This page was last edited on 21 November 2019, at 10:00. According to this new amendment, c urrent standard medium of consumption will change and sulphur content will decreased BAF(Bunker Adjustment Factor) :BAF will be calculated as per above formula and will be charged separately from the ocean freight. (c) If it is established that loss or damage occurred during the port-to-port leg for reasons stipu - lated in Clause 5 (1) (c) above, Clause 5 (1) (c) applies. BAF clauses are often found in voyage charter parties and contracts of affreightment. What are bunker adjustment factor (BAF) or surcharge clauses? The customer could be Avoyage Charterer and a Cost, Insurance & Freight (CIF) seller of cargo carried on board the vessel. Whereas today ships can use fuel with up to 3.5% sulphur content (outside Emission Control Areas), the new global sulphur cap will be 0.5%. Related Content. This calculation will be on quarter basis and published one month before the incoming quarter, based on the average fuel price of previous 3 months. This is due to the fact that the price increases seen in recent weeks mean that the fuel price has gone up by more than USD 50 per ton compared to the last time the BAF was adjusted. 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