Bunker risk management strategies in liner shipping companies part II : the bunker adjustment factor

• Main Author: Rana, Ashwini
• Other Authors: Teo Chee Chong
• Format: Final Year Project
• Language: English
• Published: 2012
• Subjects: DRNTU::Engineering::Maritime studies::Maritime management and business
• Online Access: http://hdl.handle.net/10356/49200
• Institution: Nanyang Technological University

The Bunker Adjustment Factor (BAF) is a surcharge levied upon shippers in order to transfer bunker fuel price risk to shippers and compensate for excessive bunker fuel expenses incurred as a result of extreme volatility in bunker fuel prices in today’s market. However, little is known about BAF and its applications and many question its effectiveness in cost-recovery and its fairness and reliability toward both carriers and shippers. The report attempts to address these issues by analyzing and comparing BAF applications as practiced by “K” Line and Maersk Line. Any additional findings and arguments were also supported by interviews with industry professionals in both ocean and air carriers, where fuel surcharges are a common practice. Overall, the BAF is found to be an effective tool to transfer bunker price risk and between the two liner shipping companies, results revealed that Maersk Line’s BAF policies are fairer and thus, more reliable. Accordingly, recommendations are provided for liner shipping companies in their BAF applications and the BAF is illustrated as part of a portfolio of complementary bunker risk management strategies that should be implemented together for maximum benefits. Future studies suggested include analyzing BAF practices applied by a wider range of carriers over a variety of routes and looking into the relationship of the BAF with other cost components of the “all-in rate” shippers ultimately pay.