Volatile Bunker Pricing Makes Benchmarking More Attractive, says Shipping Analyst

Monday March 4, 2019

Bunker Adjustment Factors, or BAFs, are a source of consternation between shippers and box ship operators.

Put simply, BAFs are a mechanism for operators to pass variable fuel costs down the logistics chain where those on the receiving end, the shippers, who book space on the container lines' ships, are not always in agreement, particularly if that means paying more.

As the changeover to 0.5% bunker fuel approaches to what will be a new global standard for bunker fuel, volatility in the fuel oil market will also increase. That affects prices which, in turn, prompts changes to BAFs.

The resulting confusion is causing a bit of rethink on how BAFs might work, according to shipping analyst at SP Global Platts Alex Younevitch.

"Each player has their own idea about how IMO2020 can be incorporated into bunker surcharges," Younevitch said in a podcast hosted by Platts Ocean Intelligence head Jason Silber.

Some want 3.5% sulfur fuel pricing in the BAF formula, some want 0.5% sulfur fuel pricing while others would like to see BAFs linked to Brent crude values and reviewed monthly rather than the current quarterly practice.

With uncertainty likely to intensify during the year coming to a head in fourth quarter, Younevitch envisages greater interest in a standardised bunker charge approach as well as using an overall freight benchmark.

Platts has provides these tools which, according to Younevitch, have been well received in the market.

Using benchmarks provides "a level-playing field" and allows for easier negotiations, he said.

To listen to the podcast, click here.