Using the bunker adjustment factor as a strategic decision instrument

Authored by: Christa Sys , Hilde Meersman , Yasmine Rashed , Eddy Van de Voorde , Thierry Vanelslander

The Routledge Handbook of Maritime Management

Print publication date:  May  2019
Online publication date:  April  2019

Print ISBN: 9781138671249
eBook ISBN: 9781315617138
Adobe ISBN:

10.4324/9781315617138-8

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Abstract

The bunkering adjustment factor (BAF) is an additional charge levied and payable by the shippers in order to compensate for fluctuations in the bunker price of the ship’s fuel. The BAF has been used in the liner shipping industry in case of full container loads since the 1950s. After the oil shock in the 1970s, this surcharge gained importance (Cariou and Wolff, 2006; Meersman et al., 2015a). In other shipping segments and less than container load (LCL), the BAF is either a lump sum or a percentage based on weight or measurement (W/M). This surcharge is calculated separately for each trade lane based on a typical vessel operating on that lane. The strategic decision is different per trade lane. A floating BAF allows transferring the risk of bunker price volatility to the shipper or sharing savings when crude oil and bunker prices respectively go up or down. Meersman et al. (2015a) provide a detailed theoretical framework of this relationship.

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