Commonly Used Terms
Bunker Adjustment Factor (BAF)
Bunker Adjustment Factor (BAF) is a floating freight charge or an additional charge which is levied to account for the fluctuation (increase) in the price of the ship's fuel. It is also known as 'Fuel Adjustment Factor.'
It is based on the cost of Brent crude oil, which serves as a significant international oil price benchmark. The fuel price and a trade element must be considered when calculating the BAF:
BAF = Fuel price x Trade factor
The cost of fuel is determined by averaging the costs in major bunkering ports throughout the world. The trade factor is the variation in the average fuel consumption for a particular trade according to the:
- Weight of the load
- Size of the container
- Build of the ship
- Fuel efficiency
- Vessel direction
- Transit time, etc.
Previously, the Transpacific Stabilisation Agreement (TSA), a system that fixed pricing and coordinated the behaviour of shipping companies, decided on the BAF once every three months. However, the TSA was dissolved in 2018 as a result of Maersk Line, its largest member, leaving. In order to prevent collusion, the European Commission regularly monitors the shipping lines' independent BAF tariffs, which are now determined by them.
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