News / New BAFs another headache for shippers, but a 'digital twin' may ease the pain

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As shippers and their freight forwarders prepare to see the scale of how the Hormuz closure has affected fuel costs, with new 1 July  bunker adjustment factors (BAFs), there are concerns that costs for liner customers could rise rapidly in the coming days.

Tomorrow’s new BAFs will see carriers seek to recover their extra fuel costs in the previous quarter, and could well coincide with a period in which crude prices fall – if the US-Iran ceasefire holds and shipping resumes through Hormuz, releasing new supplies to the market.

The new BAFs will also coincide with a new round of general rate increases (GRIs), peak season surcharges (PSSs), and freight all kinds (FAK) spot rate hikes, also due tomorrow.

However, there are concerns that the new BAFs could be applied on top of emergency fuel surcharges (EFSs) some carriers applied following the outbreak of the conflict, when crude prices rose significantly.

In some tradelanes – notably those to the US and regulated by the Federal Maritime Commission (FMC) – the EFSs were only allowed following a 30-day notice period, but for many shippers the 1 July BAFs could be added to these, ballooning fuel costs.

“The EFSs applied in March and April were designed to bridge the fuel-cost shock before the normal BAF mechanism caught up,” maritime fuel intelligence firm VesselBot told The Loadstar.

“Once the Q3 BAF resets, to reflect that same higher bunker price environment, the fuel cost increase it captures will largely overlap with what the EFS already recovered. If the EFS remains on invoices alongside the new BAF, shippers that have been paying the EFS since March may end up absorbing the same fuel-cost movement two or three times across successive billing periods.”

Shippers have told The Loadstar of their difficulties understanding the way the EFS had been calculated. In a recent Loadstar podcast, Global Shippers Forum director James Hookham said: “We saw within the first few weeks of the conflict, additional surcharges coming in for fuel prices… but it was difficult to understand how the shipping line had actually had to pay that price for fuel in the previous three or four days; and suddenly the shipper was confronted with an increased cost, and that was across many trades.

“Some of us had difficulty believing they need to pay it quite so quickly that they needed to pass those surcharges on as quickly as they did,” he added.

This potential “double-dipping” could exacerbate the already contentious issue of how BAFs are calculated, which Mr Hookham described as “one of the biggest factors in hindering productive relations between shippers and shipping lines” – many shippers being dubious that the BAFs accurately reflect the actual cost of fuel per teu they book.

VesselBot has created independent fuel surcharge benchmarking indices that draw prices from 500 bunkering ports, which are then overlaid on AIS data for a particular vessel’s voyage. That includes sailing distance, sailing speeds, draught (which indicates vessel utilisation), weather conditions, and time spent in ports. This can then simulate actual fuel consumption and present a more transparent picture of real fuel costs, and what an individual shipper’s contribution to that cost on that voyage should be.

“We’ve developed a digital twin for every vessel,” VesselBot founder Constantine Komodromos told The Loadstar.

“What power is needed to generate that speed ,given the cargo the vessel is carrying; the weather it comes across on its route; how much time is spent at anchorage with the auxiliary engines; the berth time; and boilers; and so on. And we can then estimate actual fuel consumption per teu,” he explained.

He argued that this visibility represented opportunities for shippers to push back against carrier-calculated BAFs – one VesselBot case study concluded its fuel surcharge benchmarks for April and May on the Asia-US west coast transpacific was 55.4% lower than carrier BAFs in April, and 61.4% lower in May.

“Assuming a shipment volume of 1,000 teu between Shanghai and Los Angeles, the resulting savings opportunity would amount to $366,000 for that tradelane in April and $374,000 in May,” the case study added.