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IMO 2020 BAF Indexing Toolkit

Drewry and the ESC have defined and published a simplified BAF indexing 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 aims and principles of the indexing mechanism are:

  • The process of adjusting BAFs is streamlined by agreeing common bunker price measurement periods, common BAF adjustment periods, common fuel reference prices and common indexing formulae.
  • The mechanism includes neither joint “BAF prices” nor joint "baseline BAF charges" – the latter need 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 (with no need for negotiation).
  • 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.
  • Consideration is given to an additional “interim” BAF adjustment to address the risk of huge volatility in the early prices of the new fuel.

Need help preparing the fuel clause in your 2019 contract?

As we begin the countdown to the 2020 regulatory deadline, we identify some of the issues worth closer scrutiny and offers tips to help you improve fuel clauses in 2019 contracts. For assistance with designing your own fuel charge programme contact us at verifiedfuelcharge@drewry.co.uk

Drewry's IMO 2020 Survey exposes uncertainty and unease among BCOs

A Drewry survey of global shippers and freight forwarders completed in Sept 2018 found that three quarters of respondents had yet to receive information from their carriers on how they planned to recover the fuel cost increases widely anticipated to accompany the regulatory change. More worryingly, over half of respondents did not consider their service providers’ existing approaches as either fair or transparent.

 

Call for greater transparency

The need for clear understanding and transparency cut to the very heart of the matter. In responding to the concerns of shippers, we have developed a new range of fuel cost verification services alongside our freight procurement and cost benchmarking products to help medium and larger BCOs better understand their fuel cost exposure and mitigate future cost increases.

 

Need more help verifying your future fuel costs?

In cooperation with both shipper members of the Drewry Benchmarking Club, and other parties, we have now developed an IMO low-sulphur rule "Cost Impact Calculator" based on robust market data and benchmarked BAF charges, looking at fuel cost differentials between loops and between carriers.

 

Drewry is currently working with other shipper groups to obtain more information on current versus the likely post-IMO fuel consumption mix. Detailed fuel data and BAF policy information has already been sourced from several carriers to incorporate in these new models.

To discuss participation in Drewry’s IMO fuel cost initiative, contact us:

 

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Recent News

The time for higher BAF charges has come

With the enforcement date of the IMO 2020 low-sulphur regulation now only 6 weeks away, shippers and forwarders are starting to get their chequebooks out to help ocean carriers cover the additional cost of the cleaner, low-sulphur fuel.

ESC, Drewry announce an IMO 2020 BAF transparent indexing mechanism

Drewry and the European Shippers’ Council (ESC) have published a bunker adjustment factor indexing mechanism to help shippers monitor and control bunker charges in the run-up to and following the introduction of the IMO 2020 low-sulphur regulation.

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