Maersk reduces Bunker Adjustment Factor (BAF)

Maersk announces they are reducing the Bunker Adjustment Factor (BAF) on 2 of their trade lanes.

About time.

Maersk Line announced plans to lower bunker surcharges imposed earlier on the trade from the Middle East and the Indian Sub-continent to the East Coast of South America.


Effective Feb. 1, the surcharges will be $55 per TEU and $110 per FEU compared with $80 and $160 at present, the Danish carrier stated in an advisory to the trade.

In a separate notice, Maersk said it plans to implement a similar reduction for cargo moving from the East Coast of South America to the Middle East and the Indian Sub-continent, also effective Feb. 1.

The revised charges will be $310 per TEU and $620 per TEU, down from $450 and $900 imposed earlier.

They would be better off getting rid of it in all of their trade lanes, as it must be a nightmare to correctly rate a bill of lading - which contracts it applies to, which ones it doesn't, etc. etc.

Furthermore, they look pretty stupid charging it now, considering today the WTI spot price is under 40.00.

I suspect this bunker adjustment factor is more than the ocean freight on some shipments. This kind of pricing severely reduces the credibility of the carriers.

Do they really think their customers are that stupid?

Bunker Adjustment Factors should come down

Today's price of oil at WTI Cushing Spot price is around 43.00.

Here is part of a chart with the Historical Crude Oil Prices (adjusted for inflation)
1996 $20.46 $28.01
1997 $18.64 $24.95
1998 $11.91 $15.70
1999 $16.56 $21.30
2000 $27.39 $34.16
2001 $23.00 $27.92
2002 $22.81 $27.22
2003 $27.69 $32.34
2004 $37.66 $42.80
2005 $50.04 $54.99
2006 $58.30 $62.11
2007 $64.20 $66.40
2008 Partial $97.98 $98.66

So, although the 2008 total average will probably be around 80.00 (I am just guessing), today's price is around the 2003-2004 levels.

I realize none of the carriers want to give up ANY revenue - they need every penny they can get, but I also think it is wrong to say you have a surcharge based on the price of oil, but then don't hold it to that basis.

One group has decreased their bunker surcharge, but not as much as the price of oil has dropped. It wouldn't surprise me if the bunker surcharge is more than the ocean freight, considering the market these days.

The Canada Transpacific Stabilization Agreement’s 11 member shipping lines on Wednesday dropped bunker surcharges 10.9 percent beginning Feb. 1.
The new fuel recovery charges will be:
• $292 per TEU.
• $365 per FEU.
• $411 per 40-foot, high-cube container.
• $462 per 45-foot container.
• $8 weight/measure adjustment.
CTSA’s currency adjustment factor will be remain at 0 percent in February.
CTSA member lines are APL, COSCO Container Lines, Evergreen Line, Hanjin Shipping, Hapag-Lloyd, Hyundai Merchant Marine, “K” Line, NYK Line, OOCL, Yang Ming and Zim Integrated Shipping Services.

We should start seeing other carriers and/or agreements reducing their bunker surcharges, or BAF (bunker adjustment factor) very soon. Either that, or we should see pictures of their pricing staff with egg on their face.

Why are there still bunker surcharges?

I have been meaning to check out the bunker surcharges (B/S), or also called, bunker adjustment factors (BAF), (just so they won't have to admit they are really BS).

I did a post back in September called Illogical Bunker Adjustment Factors (BAF)

Back then crude was still over $100.00 per barrel, although it had come down from it's high of over $140.00.

Today, December 12th, as per Bloomberg News, it is trading around $44.00 per barrel.

So I thought (stupid me) that surely the ocean carriers had withdrawn all their BS by now. Oh, excuse me, BAF. I did a Google search "why are there bunker surcharges". The 3rd one on the list was the site from Tropical Shipping.

It start out really promising:

Bunker Surcharge Calculation Information Announcement - Update

October 3, 2008 -- Over the past few months, the world has seen an unprecedented amount of volatility in the energies market.
However, due to recent market trends that have resulted in lower crude oil prices, Tropical Shipping will now base its bunker surcharge calculation on the eight week running average of the WTI.

The price of crude oil remains highly speculative and our estimated bunker surcharge continues to reflect that volatility. If anything should happen to cause the cost of oil to rise above its current level over a sustained period of time, or conversely, continue to fall over a sustained period of time, Tropical will once again have to assess the current market conditions and sustained market trends to determine if we need to revisit our bunker surcharge calculations at that time.

But - but, but, but

When I do go to their chart, this is what is says:

Effective Nov. 9, 2008, the bunker surcharge is based on the new estimated WTI Cushing Spot* price of $109.00

Effective Dec. 7, 2008, the bunker surcharge is based on the new estimated WTI
Cushing Spot* price of $140.00

*WTI Cushing Spot - this is a settlement point used on the New York Mercantile Exchange. It is based on the price of delivery in Cushing, OK.

So I don't know what's going on. Maybe they laid off the person who was in charge of this project. This is what they said they would do.

The process of implementing a bunker fuel surcharge increase is focused around observing trends in the price per barrel of crude oil. The time periods most often analyzed are: weekly, monthly, eight-week and quarterly averages.
The new bunker surcharge calculation will be based on the eight week running average of the West Texas Intermediate (WTI) Cushing Spot price of crude oil taken every Monday as published on Bloomberg.com (http://www.bloomberg.com/energy). The spot price is put into a chart that we use to track the price per barrel of crude oil to calculate the eight week running average.
The first Tuesday of every month we will review the eight week running average and publish a benchmark WTI Price per barrel that corresponds to a bunker surcharge amount that is presented in a Bunker Surcharge Chart on tropical.com and in our tariff. This chart will show the various bunker surcharges by equipment size based on the (WTI) price per barrel, provide an effective date for the new bunker surcharge (30 day notice) and a new estimated date for the next increase or decrease (60 day notice).

I am going to give them the benefit of the doubt, and say I don't know how to read their chart. I can always hope.

Anyway, maybe I will try to give them a call and find out what's going on.

I hate to start looking at the other carriers. It's all so depressing. They were so anxious to get this additional revenue, but of course no one thought it would go the other way. They should really be giving Bunker Adjustment Factor credits at this point.

Illogical BAF (bunker adjustment factors)

Update Dec. 12 - Why are there still bunker surcharges?

When I was looking at the Maersk web-site I noticed they are implementing a new BAF (bunker adjustment factor) calculator, as they call it. This type of surcharge use to be called a bunker surcharge, but as the acronym for that is BS, I guess they had to change it.

Not all the trades are implemented. This is one I picked out because it's lop-sided, much more than the others. Most of them were pretty close for each direction of the trade, but not this one.

North & Latin America to East Africa

USD 600 per 20’ container
USD1200 per 40’ container

East Africa to North and Latin America

USD 200 per 20’ container
USD 400 per 40’ container

Here is an example they give for calculating the bunker surcharge.


Bunker consumption: 0.047 mt/TEU/day Bunker Consumption - the amount of metric tons of bunker fuel needed to transport a 20' container each day of the transit.
Transit Time: 24 days Transit Time - the average number of days of a round trip voyage, divided by two, equals the one way transit time.
Imbalance factor: 0.50 Imbalance factor – is the ratio of headhaul to backhaul. This measures the inequality between imports and exports in each trade.
Bunker price change: 527 (Price) - 195 (Bunker base element) = 332 USD Bunker Price Change - the change in bunker cost, up or down, during the measurement period. The price change is the new price less the original price, (the base bunker cost is included in the base ocean freight rate).
Future bunker price: 682 USD Future bunker price - the change in bunker cost, up or down, during the measurement period. The price change is the new price less the original price, (the base bunker cost is included in the base ocean freight rate).
What are the monitoring ports

I have a friend who is a mathematician. I'll ask him to explain it to me.

Ok, well that's not really fair. I do understand it. I just don't know if like the way they are applying it. But then again it goes back to whatever the cargo can bear.

Oh, sorry, I gave away the secret to ocean rate pricing.