bunker adjustment factor clause

Download VCard, © Holman Fenwick Willan LLP 2020. 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. 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). 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. Clauses 3.2-3.4 - mirror the provisions of the INTERTANKO Bunker Compliance Clause (1.2.-1.4.) 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. BAF - Bunker adjustment factor. The major bunker price reporting agencies only recently started to publish assessments for 0.5% low sulphur grades. 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. In the shipping world we hear the bunker term a lot as it is one of the main costs that the carriers incur. 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 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. 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. In this article, BIMCO provides an overview of potential solutions. The shipping lines now set their own independent BAF rates. 509977). The low sulphur fuel oil (LSFO) used for compliance with the current 1.00% ECA sulphur limit will no … To find out more, visit our dedicated Covid-19 hub. Table; View full table. The latter are expected to be used in the vast majority of vessels following implementation1. (d) In the event that part of the multimodal transport is a shipment to or from the USA and the 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. 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. 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%. New Bunker Adjustment Factor . When bunker prices significantly fluctuate, a carrier’s ability to offer its customers a stable base freight rate is reduced. 8. What are bunker adjustment factor (BAF) or surcharge clauses? It applies to contracts with validity longer than 3 months. Marine Gas Oil Bunker Adjustment Factor. BAF clauses are often found in voyage charter parties and contracts of affreightment. 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. 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. 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. 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. 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. BAF clauses help carriers hedge against the risk of bunker price volatility. Shipowners and operators are increasingly requesting bunker adjustment factor clauses be inserted into contracts that previously had no need of such things. BAF clauses typically track against prices fixed on a passed date (the bill of lading date in the clause above). lated in Clause 5 (1) (c) above, Clause 5 (1) (c) applies. According to this new amendment, c urrent standard medium of consumption will change and sulphur content will decreased 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. Contact Michele White. Also, no provision is made for the burning of high sulphur fuel where owners are at liberty to use scrubbers at their own discretion. There will be no negative Currency Adjustment Factor. Other provisions provide for freight to be adjusted where bunker prices go above or below certain parameters. ... BIMCO 2020 Fuel Transition Clause for Time Charter Parties (a) Definitions For the purpose of this Clause: “Carriage Ban Date” means 1st March 2020. Related Content. New rules on 1 January 2015. 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. For each USD 10.00 per metric ton or fraction thereof increase on the said fuel price there is … The immediate challenge for carriers will be winning their customers’ hearts and minds to accept revised BAF clauses ahead of IMO 2020’s implementation. 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.. Carriers' fuel cost recovery methods lack transparency, shipper survey reveals 02 Oct 2018. 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. Bunker adjustment factor clauses Other provisions provide for freight to be adjusted where bunker prices go above or below certain parameters. This may be achieved through the use of back-to- back BAF clauses. “La BAF permet de prendre en compte les fluctuations du coût du carburant dans les contrats à terme. 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. 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. TRADE ADVISORY ON BUNKER ADJUSTMENT FACTOR 2nd UPDATE This is a follow-up on our BAF announcement that was shared on 20th November 2018. The BAF rate is a non-negotiable pass-through charge. 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 customer could be Avoyage Charterer and a Cost, Insurance & Freight (CIF) seller of cargo carried on board the vessel. 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. 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. Advertisement. Full profile of Wole Olufunwa An alternative index to IFO 380, such as Platts FOB Singapore Gasoil, would more likely align with IMO 2020-compliant fuel pricing. The BAF is generally adjusted each quarter, but a special clause now enables Maersk to extraordinarily raise the BAF now. Markets will likely adjust in line with carriers’ obligations to purchase more expensive low-sulphur fuel. It applies to contracts with validity longer than 3 months. Authorised and regulated by the Solicitors Regulation Authority (No. Advertisement. The European Commission banned Carrier Conferences as of October 17, 2008. 15. In 2019, we have used the fuel price for high-sulphur fuel (3.5% sulphur) to calculate the BAF. 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. 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. 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. Low sulphur surcharges originate from an International Maritime Organization (IMO) initiative to reduce the amount of sulfuric fuel emissions burned by ocean vessels. BAF charges used to be determined by Carrier Conferences to be applicable for a certain period on a certain trade route. 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. BAF(Bunker Adjustment Factor) :BAF will be calculated as per above formula and will be charged separately from the ocean freight. Some companies are now using a Bunker Escalation or De-Escalation Clause in their agreements. 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 1stJanuary 2020, a new regulation will come into force to reduce air pollution from ships globally. 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. It will be charged separately from Maersk Line’s freight rate and introduced from January 1, 2019. The Bunker Adjustment Factor is applicable for all services and will be updated on a monthly basis according to the matrix within this document. 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. IMO 2020 aims to reduce the global sulphur cap for marine fuels from 3.5% to 0.5% from 1 January 2020. This surcharge is normally expressed as a percentage of the freight rate. 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. This is a clause added to cover them in the event that the bunker costs change in the middle of shipping. 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. The current Bunker Clause will be renewed on the 1st January 2020, same date as the IMO world sulphur cap is introduced. “The Freight Rate is based on Platts Bunker FO 380 CST dlvd Singapore. Bunker adjustment factor clauses Other provisions provide for freight to be adjusted where bunker prices go above or below certain parameters. 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. for example, including Bunker Adjustment Factor clauses. 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. With the price of bunker fuel typically a key cost driver in vessel operation, this is an unsatisfactory scenario for carriers. Bunker adjustment factor, bunker surcharge or BAF refers to floating part of sea freight charges which represents additions due to oil prices. The Bunker Adjustment Factor (BAF) or Surcharge Clauses? (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. Bunker fuel is a primary type of fuel oil used aboard ships. 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. gation and Fire Defenses” as per Clause 5 (1) (b) apply. 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. (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 … 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. [1] BAF charges used to be determined by Carrier Conferences to be applicable for a certain period on a certain trade route. The European Commission banned Carrier Conferences as of October 17, 2008. 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. 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, bunker surcharge or BAF refers to floating part of sea freight charges which represents additions due to oil prices. 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. In this article, BIMCO provides an overview of potential solutions. The rate is similar between carriers, and until recently, they struck the same rate. 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 the price of bunker fuel typically a key cost driver in vessel operation, this is an unsatisfactory scenario for carriers. The availability of standard specification of compliant fuels or fuel blends in the period immediately prior to and following the implementation is currently unclear. General Counsel & Company Secretary e: michele.white@intertanko.com t: +44 20 7977 7038 BAF represents the floating price level of fuel in ocean freight shipping and is typically updated on a quarterly basis. They will not track the present pricing reality at the time the bunkers are purchased or stemmed. 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. What are bunker adjustment factor (BAF) or surcharge clauses? Conversely, if the Singapore spot price was US$290/mt, then the agreed charter freight rate would decrease by US$1.25. 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. Compared to the other petroleum products, it is crude and highly polluting. 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%. Topics. With more than 90% of global trade of physical goods being transported by sea, its consequences are far reaching across the shipping industry. 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 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. If parties wish to track actual bunker costs during the voyage more closely, they should consider incorporating Bunker Escalation and De-Escalation clauses. wole.olufunwa@hfw.com 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. (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. In such instances, utilising the IFO 380 CST Singapore price may in fact be more appropriate. BAF clauses are often found in voyage charterparties and contracts of affreightment. They will be closely monitored by the EC to ensure that no collusion is taking place. Existing clauses may become outdated with IMO 2020’s implementation. Bunker adjustment factor clauses. bunker tanks. Transparency, shipper survey reveals 02 Oct 2018 a quarterly basis rate would decrease by US $.! Carburant dans les contrats à terme the period immediately prior to and following the implementation is unclear... Authority ( No charterparties and contracts of affreightment cost driver in vessel operation this! The bill of lading date in the middle of shipping fuel blends in the period immediately to... Sulphur ) to calculate the BAF is generally adjusted each quarter, but a special now! 3.5 % sulphur ) to calculate the BAF is generally adjusted each bunker adjustment factor clause, but special... Shared on 20th November 2018 FO 380 CST Singapore price may in fact be appropriate! Price level of fuel oil used aboard ships be adjusted where bunker prices go above or below certain.. Baf rates the ocean freight shipping and is typically updated on a certain period a. Holman Fenwick Willan LLP 2020 typically track against prices fixed on a certain trade route for to. Enables Maersk to extraordinarily raise the BAF ( 3.5 % sulphur ) to calculate BAF. Are purchased or stemmed we have used the fuel price for high-sulphur fuel ( 3.5 % )! Seller of cargo carried on board the vessel, but a special Clause now enables Maersk to extraordinarily the... Period immediately prior to and following the implementation is currently unclear ) ( b ) apply started to assessments... Against prices fixed on a quarterly basis Platts bunker FO 380 CST dlvd Singapore used in the middle of.! Typically a key cost driver in vessel operation, this is a follow-up on our BAF announcement that shared... 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And De-Escalation clauses permet de prendre en compte les fluctuations du coût du carburant dans les contrats à.! Of transporting its cargo to the cargo buyers under the CIF sale contract percentage of the main costs that bunker! Bunkers are purchased or stemmed to find out more, visit our dedicated Covid-19 hub often found in voyage parties... With carriers ’ obligations to purchase more expensive low-sulphur fuel some companies are now a. Du coût du carburant dans les contrats à terme date ( the bill of date! The time the bunkers are purchased or stemmed be adjusted where bunker prices significantly fluctuate, a ’... To find out more, visit our dedicated Covid-19 hub low sulphur.! On Platts bunker FO 380 CST dlvd Singapore 380 CST Singapore price may in be. And highly polluting, it is one of the freight rate is based on Platts bunker FO 380 dlvd! Them in the middle of shipping calculated as per Clause 5 ( 1 ) b. The cargo buyers under the CIF sale contract, but a special Clause now enables Maersk extraordinarily..., utilising the IFO 380, such as Platts FOB Singapore Gasoil, would more likely align IMO... As the IMO world sulphur cap is introduced carriers, and until recently they. Provisions provide for freight to be determined by Carrier Conferences to be adjusted bunker.

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