Drewry and the European Shippers’ Council launch a bunker adjustment factor mechanism and bunker charge guide to help shippers monitor and control bunker charges as shipping lines switch to the more expensive bunkers required under the IMO 2020 low-sulphur regulation.
The newly-launched toolkit includes:
- The process of adjusting BAFs (bunker adjustment factors) is streamlined by highlighting the common standards and definitions on bunker price measurement periods, BAF adjustment periods, fuel reference prices and transparent indexing formulae.
- The mechanism does not include either “BAF prices” or joint “baseline BAF charges”: This is because the latter needs to be agreed commercially between parties before the start of the shipping contract; it includes only an indexing mechanism.
- Step 1 of the process is that the shipper and the provider agree on the “baseline” initial bunker charges and the link to the baseline external fuel price (at the start of the contract).
- Step 2 of the process is that, during the period of the contract, revised bunker charges are calculated based on the previous quarter’s average price for the external fuel reference, and apply contractually to the following quarter.
- BAF charges are updated once a quarter with a lag time of 1 month to allow parties to update their respective invoicing and purchasing systems.
Moreover, Drewry comments that they’re considering on adding an “interim” BAF adjustment to address the risk of huge volatility in the early prices of the new fuel.
In light of this collaboration, Philip Damas, head of Drewry Supply Chain Advisors commented
We believe that the ESC-Drewry IMO 2020 toolkit and its indexing mechanism will help improve transparency and fairness in how extra fuel costs incurred by shipping lines and forwarders due to the new regulation are passed on to exporters and importers.
