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Maersk to introduce new BAF in January

Nov 13, 2018
Maersk will introduce a new Bunker Adjustment Factor (BAF) on 1 January, 2019 to recover the costs of compliance with the global sulphur cap which enters into force on 1 January, 2020.

Vincent Clerc, Chief Commercial Officer, AP Moller - Maersk A/SThis regulation has been developed and adopted by the International Maritime Organisation (IMO), a specialised agency under the United Nations (UN). Whereas today ships can use fuel with a sulphur content of 3.5%, the new sulphur cap will be 0.5%.

To become compliant ship owners will have to invest in compliant fuels, LNG or scrubber technology. This is expected to lower the sulphur emissions from global shipping, a known source for respiratory disease and acid rain, by more than 80%.

“We fully support the new rules. They will be a significant benefit to the environment and to human health,” said Vincent Clerc, Chief Commercial Officer, AP Moller - Maersk A/S. “The 2020 sulphur cap is a game changer for the shipping industry. Maersk preparations to comply are well underway and so are our customers’ efforts to plan ahead. The new BAF is a simple, fair and predictable mechanism that ensures clarity for our customers in planning their supply chains for this significant shift.”

The regulation will bring increases and uncertainty to fuel costs for shipping. The BAF surcharge is designed to recover increases in fuel related costs. It will be charged separately from Maersk Line’s freight rate.

According to industry estimates, more than 90% of the global vessel fleet will be relying on compliant fuels when the sulphur rules step into force on 1 January, 2020.

Based on expected differences in price between current 3.5% bunker fuel and compliant 0.5% fuel, external sources estimate the additional cost for the global container shipping industry to comply could be up to US$15 billion. Maersk Line expects its extra fuel costs could exceed US$2 billion.

The BAF replaces Maersk Line’s current BAF and consists of two key elements; the fuel price which is calculated as the average fuel price in key bunkering ports around the world, and a trade factor that reflects the average fuel consumption on a given trade lane as a result of variables such as transit time, fuel efficiency and trade imbalances.

Combining the two factors give customers full predictability of their costs at any given fuel price both before and after 2020.

The company says that it is introducing the new BAF a year early to allow customers to become familiar with the changed formula.

Photo: Vincent Clerc

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