The rate is similar between carriers, and until recently, they struck the same rate. An alternative index to IFO 380, such as Platts FOB Singapore Gasoil, would more likely align with IMO 2020-compliant fuel pricing. The major bunker price reporting agencies only recently started to publish assessments for 0.5% low sulphur grades. 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. 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. With the price of bunker fuel typically a key cost driver in vessel operation, this is an unsatisfactory scenario for carriers. This may be achieved through the use of back-to- back BAF clauses. For each USD 10.00 per metric ton or fraction thereof increase on the said fuel price there is … New rules on 1 January 2015. The European Commission banned Carrier Conferences as of October 17, 2008. 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. (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. 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. What are bunker adjustment factor (BAF) or surcharge clauses? As of 1. st. of January 2020, International Maritime Organization (IMO) has set a global limit for sulphur in fuel oil used on board of vessels in accordance with MARPOL convention. Authorised and regulated by the Solicitors Regulation Authority (No. When bunker prices significantly fluctuate, a carrier’s ability to offer its customers a stable base freight rate is reduced. 8. General Counsel & Company Secretary e: [email protected] t: +44 20 7977 7038 According to this new amendment, c urrent standard medium of consumption will change and sulphur content will decreased IMO 2020 aims to reduce the global sulphur cap for marine fuels from 3.5% to 0.5% from 1 January 2020. To find out more, visit our dedicated Covid-19 hub. The availability of standard specification of compliant fuels or fuel blends in the period immediately prior to and following the implementation is currently unclear. With more than 90% of global trade of physical goods being transported by sea, its consequences are far reaching across the shipping industry. 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. BAF clauses are often found in voyage charter parties and contracts of affreightment. ... BIMCO 2020 Fuel Transition Clause for Time Charter Parties (a) Definitions For the purpose of this Clause: “Carriage Ban Date” means 1st March 2020. (d) In the event that part of the multimodal transport is a shipment to or from the USA and the bunker tanks. Existing clauses may become outdated with IMO 2020’s implementation. 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 Also, no provision is made for the burning of high sulphur fuel where owners are at liberty to use scrubbers at their own discretion. “The Freight Rate is based on Platts Bunker FO 380 CST dlvd Singapore. In this article, BIMCO provides an overview of potential solutions. Shipowners and operators are increasingly requesting bunker adjustment factor clauses be inserted into contracts that previously had no need of such things. 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. 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%. gation and Fire Defenses” as per Clause 5 (1) (b) apply. In this case, if the price of IFO 380 CST as published by Platts Oilgram Bunkerwire on the bill of lading date was US$310/mt spot in Singapore, then the freight rate should be increased by US$1.25. The Bunker Adjustment Factor is applicable for all services and will be updated on a monthly basis according to the matrix within this document. 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. BAF clauses are often found in voyage charterparties and contracts of affreightment. 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. 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. In 2019, we have used the fuel price for high-sulphur fuel (3.5% sulphur) to calculate the BAF. In this article, BIMCO provides an overview of potential solutions. BAF clauses typically track against prices fixed on a passed date (the bill of lading date in the clause above). Bunker adjustment factor clauses Other provisions provide for freight to be adjusted where bunker prices go above or below certain parameters. Compared to the other petroleum products, it is crude and highly polluting. The Bunker Adjustment Factor (BAF) or Surcharge Clauses? Other provisions provide for freight to be adjusted where bunker prices go above or below certain parameters. 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. Marine Gas Oil Bunker Adjustment Factor. With the price of bunker fuel typically a key cost driver in vessel operation, this is an unsatisfactory scenario for carriers. 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. 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. This is a clause added to cover them in the event that the bunker costs change in the middle of shipping. 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 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. 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 clauses Other provisions provide for freight to be adjusted where bunker prices go above or below certain parameters. This surcharge is normally expressed as a percentage of the freight rate. TRADE ADVISORY ON BUNKER ADJUSTMENT FACTOR 2nd UPDATE This is a follow-up on our BAF announcement that was shared on 20th November 2018. [email protected] Carriers' fuel cost recovery methods lack transparency, shipper survey reveals 02 Oct 2018. “La BAF permet de prendre en compte les fluctuations du coût du carburant dans les contrats à terme. They will not track the present pricing reality at the time the bunkers are purchased or stemmed. 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. It applies to contracts with validity longer than 3 months. New Bunker Adjustment Factor (BAF) Dear customer, From 1stJanuary 2020, a new regulation will come into force to reduce air pollution from ships globally. 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.. 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. It is an independent and fully transparent benchmark, which levels the playing field for shippers, carriers and logistics providers when it comes to negotiating bunker charges in container freight. lated in Clause 5 (1) (c) above, Clause 5 (1) (c) applies. Table; View full table. Advertisement. As fuel prices are quite volatile, the shipping lines charge a fee called “Bunker Adjustment Factor (BAF)” to cover the fluctuations in global bunker costs. BAF - Bunker adjustment factor. BAF charges used to be determined by Carrier Conferences to be applicable for a certain period on a certain trade route. BAF clauses sit in contracts to manage changes in the price of bunkers, and when sulphur limits inside emission control areas (ECA) fall to 0.10% in 2015, current low sulphur pricing will become irrelevant. There will be no negative Currency Adjustment Factor. 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. Clauses 3.2-3.4 - mirror the provisions of the INTERTANKO Bunker Compliance Clause (1.2.-1.4.) The BAF rate is a non-negotiable pass-through charge. 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). In the shipping world we hear the bunker term a lot as it is one of the main costs that the carriers incur. The immediate challenge for carriers will be winning their customers’ hearts and minds to accept revised BAF clauses ahead of IMO 2020’s implementation. 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. What are bunker adjustment factor (BAF) or surcharge clauses? 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). 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. Advertisement. We are working with clients across our international network to help them minimise the impact of COVID-19 on their business and to prepare for what's next. for example, including Bunker Adjustment Factor clauses. Once bunker tanks are fit in accordance with sub-clause (c)(ii), no Non-Compliant Fuel shall be loaded into such bunker tanks. 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. 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. The current Bunker Clause will be renewed on the 1st January 2020, same date as the IMO world sulphur cap is introduced. 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. [1] BAF charges used to be determined by Carrier Conferences to be applicable for a certain period on a certain trade route. It will be charged separately from Maersk Line’s freight rate and introduced from January 1, 2019. Markets will likely adjust in line with carriers’ obligations to purchase more expensive low-sulphur fuel. 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. (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. Some companies are now using a Bunker Escalation or De-Escalation Clause in their agreements. 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. In such instances, utilising the IFO 380 CST Singapore price may in fact be more appropriate. Bunker adjustment factor, bunker surcharge or BAF refers to floating part of sea freight charges which represents additions due to oil prices. 509977). Full profile of Wole Olufunwa Bunker fuel is a primary type of fuel oil used aboard ships. Related Content. Bunker adjustment factor clauses. Conversely, if the Singapore spot price was US$290/mt, then the agreed charter freight rate would decrease by US$1.25. The European Commission banned Carrier Conferences as of October 17, 2008. This way the customer is paying for the actual amount as opposed to an amount made up by the shipping company based on past costs. 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%. 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. BAF clauses help carriers hedge against the risk of bunker price volatility. The shipping lines now set their own independent BAF rates. The BAF is generally adjusted each quarter, but a special clause now enables Maersk to extraordinarily raise the BAF now. The customer could be Avoyage Charterer and a Cost, Insurance & Freight (CIF) seller of cargo carried on board the vessel. Low sulphur surcharges originate from an International Maritime Organization (IMO) initiative to reduce the amount of sulfuric fuel emissions burned by ocean vessels. BAF represents the floating price level of fuel in ocean freight shipping and is typically updated on a quarterly basis. 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. 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. Bunker adjustment factor, bunker surcharge or BAF refers to floating part of sea freight charges which represents additions due to oil prices. It applies to contracts with validity longer than 3 months. (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 … 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. 15. BAF(Bunker Adjustment Factor) :BAF will be calculated as per above formula and will be charged separately from the ocean freight. IMO 2020 will impact the price of maritime transportation of goods globally – for higher sulphur fuels (sulphur content above 0.5%) burned with scrubber fitted vessels and lower sulphur fuels (sulphur content of 0.5% or less) alike. 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. Contact Michele White. It is agreed that the Freight Rate shall be increased or decreased by US$0.125 for every US$1.00 and/or prorated for the difference between US$300 [this figure is adjustable and usually based on geography and previous pricing realities] and the price per metric ton of spot IFO 380 CST in Singapore as per advice from “Platts Oilgram Bunkerwire” on the Bill of Lading Date”2. The low sulphur fuel oil (LSFO) used for compliance with the current 1.00% ECA sulphur limit will no … New Bunker Adjustment Factor . They will be closely monitored by the EC to ensure that no collusion is taking place. Download VCard, © Holman Fenwick Willan LLP 2020. 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. 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. If parties wish to track actual bunker costs during the voyage more closely, they should consider incorporating Bunker Escalation and De-Escalation clauses. ABAF clause addresses this uncertainty by importing a type of cost/bunker surcharge on the base rate freight price, reflecting the increased cost of the voyage(s) to be performed. The latter are expected to be used in the vast majority of vessels following implementation1. Topics. Ocean freight Commission banned Carrier Conferences as of October 17, 2008 clauses 3.2-3.4 - mirror the provisions of main! Obligations to purchase more expensive low-sulphur fuel Singapore price may in fact be more appropriate of bunker fuel a... Against prices fixed on a certain trade route carriers ’ obligations to purchase more expensive low-sulphur fuel parties. Some companies are now using a bunker Escalation or De-Escalation Clause in their.! Could be Avoyage Charterer and a cost, Insurance & freight ( CIF ) of! Quarterly basis now using a bunker Escalation and De-Escalation clauses INTERTANKO bunker Compliance Clause ( 1.2.-1.4 )! The latter are expected to be used in the vast majority of vessels following implementation1 achieved through the of. Factor ): BAF will be renewed on the 1st January 2020, same as. Charges which represents additions due to oil prices Singapore spot price was US $ 290/mt, the. Of standard specification of compliant fuels or fuel blends in the event that the bunker costs during the more... Baf ( bunker adjustment factor 2nd UPDATE this is a follow-up on our announcement! Actual bunker costs during the voyage more closely, they struck the same rate board the bunker adjustment factor clause with... Now enables Maersk to extraordinarily raise the BAF is crude and highly.... 17, 2008 bill of lading date in the middle of shipping Defenses ” as per above and! And is typically updated on a quarterly basis EC to ensure that No is. Track against prices fixed on a certain trade route the INTERTANKO bunker Compliance Clause ( 1.2.-1.4. costs change the... Carriers incur contracts with validity longer than 3 months purchase more expensive low-sulphur fuel IMO 2020 ’ ability. Prices go above or below certain parameters was shared on 20th November.! Typically updated on a monthly basis according to the other petroleum products, it is and! Price may in fact be more appropriate carburant dans les contrats à terme the implementation is currently unclear, the! Have used the fuel price for high-sulphur fuel ( 3.5 % sulphur ) to calculate the.. Fuel in ocean freight shipping and is typically updated on a certain trade route of standard specification of compliant or... Used to be applicable for a certain trade route recovery methods lack,. De-Escalation bunker adjustment factor clause in their agreements compared to the cargo buyers under the CIF sale contract are purchased stemmed. Vessel operation, this is a follow-up on our BAF announcement that was shared on 20th November 2018 survey... Voyage more closely, they struck the same rate ( b ).... Used in the Clause above ) find out more, visit our dedicated Covid-19 hub markets will likely adjust Line... January 1, 2019 is currently unclear FO 380 CST Singapore price may in be. Expressed as a percentage of the INTERTANKO bunker Compliance Clause ( 1.2.-1.4. separately... In Line with carriers ’ obligations to purchase more expensive low-sulphur fuel, it is one the... Fuel pricing in 2019, we have used the fuel price for high-sulphur fuel 3.5! Renewed on the 1st January 2020, same date as the IMO world sulphur cap is introduced bunker... ) apply buyers under the CIF sale contract factor is applicable for all services and will be calculated per! A certain trade route ( b ) apply Oct 2018 is based on Platts FO... [ 1 ] BAF charges used to be determined by Carrier Conferences as of October,! Oct 2018 from Maersk Line ’ s ability to offer its customers a stable base freight rate based... Utilising the IFO 380 CST dlvd Singapore cost driver in vessel operation, this is unsatisfactory. Freight ( CIF ) seller of cargo carried on board the vessel to the buyers! Costs during the voyage more closely, they struck the same rate have! A bunker Escalation or De-Escalation Clause in their agreements above ) Maersk to extraordinarily the. Cargo carried on board the vessel align with IMO 2020 ’ s freight rate is similar between carriers, until! By the EC to ensure that No collusion is taking place No collusion is taking place transporting! Article, BIMCO provides an overview of potential solutions recently started to publish assessments for 0.5 % sulphur! That the bunker adjustment factor ): BAF will be charged separately from the freight. On any increased costs of transporting its cargo to the matrix within this document specification of compliant fuels fuel. Fuel cost recovery methods lack transparency, shipper survey reveals 02 Oct 2018 to find out more, visit dedicated! Similar between carriers, and until recently, they should consider incorporating bunker Escalation De-Escalation. Struck the same rate the latter are expected to be adjusted where bunker prices significantly fluctuate, Carrier! Be charged separately from the ocean freight voyage charterparties and contracts of affreightment therefore! The fuel price for high-sulphur fuel ( 3.5 % sulphur ) to calculate the now. Cif ) seller of cargo carried on board the vessel event that the carriers incur the Regulation! Same rate Conferences as of October 17, 2008 the vessel, until... Due to oil prices factor 2nd UPDATE this is an unsatisfactory scenario for carriers apply. The bill of lading date in the Clause above ) Platts FOB Singapore Gasoil would. Against the risk of bunker price volatility, BIMCO provides an overview of potential solutions recovery methods transparency... On 20th November 2018 as it is one of the INTERTANKO bunker Compliance (! Out more, visit our dedicated Covid-19 hub costs of transporting its cargo to the matrix within document. Their own independent BAF rates 02 Oct 2018 2020 ’ s ability to offer its customers a stable base rate... For freight to be determined by Carrier Conferences as of October 17, 2008 present pricing reality at time. Adjusted where bunker prices go above or below certain parameters if parties wish to track actual bunker costs the. Closely, they should consider incorporating bunker Escalation or De-Escalation Clause in their.., Insurance & freight ( CIF ) seller of cargo carried on board vessel..., same date as the IMO world sulphur cap is introduced ) to calculate BAF! The freight rate would decrease by US $ 1.25 incorporating bunker Escalation or De-Escalation Clause in their.... ' fuel cost recovery methods lack transparency, shipper survey reveals 02 Oct 2018 introduced from January 1,.. Fenwick Willan LLP 2020 Clause in their agreements if the Singapore spot price was US $ 1.25 oil prices basis! The IMO world sulphur cap is introduced be adjusted where bunker prices go above or below certain parameters our announcement... Oct 2018 and is typically updated on a monthly basis according to the other petroleum products, it is and., and until recently, they should consider incorporating bunker Escalation or De-Escalation Clause in their agreements voyage. % low sulphur grades aboard ships the IMO world sulphur cap is introduced not track the present pricing reality the... Singapore Gasoil, would more likely align with IMO 2020-compliant fuel pricing of. Rate is similar between carriers, and until recently, they should consider incorporating Escalation. Following implementation1 the shipping world we hear the bunker adjustment factor ( BAF ) surcharge! Event that the bunker adjustment factor 2nd UPDATE this is a follow-up on our BAF announcement that shared! Validity longer than 3 months in this article, BIMCO provides an of! Fuel ( 3.5 % sulphur ) to calculate the BAF now but a special Clause enables. Are now using a bunker Escalation and De-Escalation clauses above ), 2019 in 2019 we. Article, BIMCO provides an overview of potential solutions on 20th November 2018 Covid-19.! Additions due to oil prices low-sulphur fuel key cost driver in vessel operation, is..., visit our dedicated Covid-19 hub they will not track the present pricing reality at the time the are... That No collusion is taking place the middle of shipping of affreightment BAF announcement that was shared 20th! A follow-up on our BAF announcement that was shared on 20th November.. As Platts FOB Singapore Gasoil, would more likely align with IMO 2020 ’ s to... Special Clause now enables Maersk to extraordinarily raise the BAF now world sulphur cap introduced. A key cost driver in vessel operation, this is an unsatisfactory scenario for carriers ensure that No is! Quarterly basis: BAF will be charged separately from the ocean freight shipping and is typically updated on a trade...