Maersk Adjusts Fuel Surcharge Ahead of 2020 Sulfur Cap

Maersk ship

Published Sep 17, 2018 4:39 AM by The Maritime Executive

Maerks Line has announced a new bunker adjustment factor (BAF) surcharge it says will enable customers to predict, plan and track how changes in fuel price impact the shipping freight rate.

The new BAF surcharge aims at recovering the Maersk Line costs of compliance with the global sulfur cap which enters into force on January 1, 2020. The cap means that ships will use fuel with a sulfur content of less than 0.5 percent, rather than the 3.5 percent that is used now. To become compliant shipowners will have to invest in compliant fuels, LNG or scrubber technology. This is expected to lower global shipping's sulfur emissions, a known source for respiratory disease and acid rain, by more than 80 percent.

The regulation will bring increases and uncertainty to fuel costs for shipping. According to industry estimates, more than 90 percent of the global vessel fleet will be relying on compliant fuels when the sulphur rules step into force. This will also be the case for the Maersk Line fleet, despite a recent investment in a limited number of scrubbers. 

The BAF surcharge is designed to recover increases in fuel related costs. It will be charged separately from Maersk Line's freight rate. Based on expected differences in price between current 3.5% bunker fuel and compliant 0.5 percent fuel, external sources estimate the additional cost for the global container shipping industry to comply could be up to $15 billion. Maersk Line expects its extra fuel costs could exceed $2 billion.

The BAF replaces Maersk Line's current Standard Bunker Adjustment Factor (SBF) surcharge 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 like transit time, fuel efficiency and trade imbalances between head haul and backhaul legs. Combining the two factors give customers full predictability of their costs at any given fuel price both before and after 2020. Maersk Line's BAF surcharge will be introduced on January 1, 2019.

"We fully support the new rules. They will be a significant benefit to the environment and to human health", says Vincent Clerc, Chief Commercial Officer, A.P. Moller - Maersk A/S. "The 2020 sulfur 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."

Examples only of BAF tariffs (USD/FFE) for standard (dry) containers at different fuel prices (USD/ton), for selected trades: