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 cheque-books out to help ocean carriers cover the additional cost of the cleaner, low-sulphur fuel.
On 4 December Drewry will publish the first Bunker Adjustment Factor reference price based on low-sulphur fuel and in line with our independent BAF indexing mechanism. Using this mechanism, the bunker reference price will change from the previous high-sulphur IFO 380 fuel to the new low-sulphur fuel and affect the new BAFs with effect from January.
What are the numbers? Since early October, the weighted average low-sulphur bunker price for major bunkering ports tracked by Drewry has been $542 per metric tonne. So, assuming prices stay at about that level in the next two weeks, the Drewry bunker reference price for the period October-November will be around $530-550, up about 34-38% from the $396 price of IFO 380 fuel at the same bunkering ports applicable to the 4Q19 period.
Drewry recommends that shippers and forwarders use the average October-November low-sulphur price to set new BAF charges applicable from 1 January 2020.
Several carriers have announced transitional or “emergency” bunker charges applicable from 1 December 2019. These will apply, they say, only to spot rates and to contracts of less than 3 months, but a Drewry customer with an annual contract has also been requested by some of his carriers to start paying an IMO BAF from 1 December.
To benchmark BAFs confidentially by tradelane, many BCOs are using the Drewry Benchmarking Club. It will be interesting to see whether the agreed contract BAFs go up pro rata the bunker prices, as stipulated by the Drewry BAF indexing mechanism, and whether some carriers end up reducing their base rates and charge the “full BAF” in their next contracts.
Shippers should continue to watch this topic very closely in 2020.