Latin America East-West Trade - Implementation of new Bunker Adjustment Formula effective 1st January 2019
Bunker is one of the important cost components for a container shipping line. And as you are aware, IFO 380 price has shown strong fluctuations in the recent months.
In addition, a new IMO (International Maritime Organization) low sulphur regulation will be applied to all container shipping companies effective 1st January 2020. The regulation stipulates a maximum sulphur content threshold of 0.5% for marine fuels over 100% of the sea distance for any maritime services, including services across the Latin America Trade.
To be compliant with this new regulation APL will use low sulphur fuel (LSFO) and the cost per ton is expected to be significantly higher than IFO 380.
Effective 1st January 2019, in order to ensure the sustainability and reliability of our services in this volatile environment, APL will introduce an updated quarterly Bunker Adjustment Formula (BAF) – currently known as Fuel Adjustment Factor (FAF) – for all contracts.
You will find here below all the key elements of this BAF:
o Quarterly revision, based on IFO 380 bunker average price and/or LSFO, depending on contract duration.
o This new quarterly BAF will be applied to all contracts of any duration, starting from 1st January 2019.
- BAF quantum
o Based on the average tonnage of fuel consumed on Latin America East-West Trade, the following quantum will be applied depending on the fuel price fluctuation.
- Tiers of USD 25
o Tiers of USD 25 have been set up in order to avoid BAF revision in case of limited variation of Fuel Oil price.
o Applicable BAF will be the corresponding value in the relevant tier.
If average FO price = USD 469.00 / ton, the corresponding BAF will be USD 308.75 per TEU ($451 < $469 < $475) for Asia to Latin America (refer to table above).
- Bunker reference
o Starting from 2019, IFO 380 price will be the reference for Latin America East-West Trade’s BAF.
o APL is using a single IFO 380 reference for all trades, with the following weight of each port worldwide: 40% Rotterdam IF0 380; 50% Singapore IFO 380; 10% Houston IFO 380.
o Prior to 2020, a new LSFO will apply, and the index will be determined accordingly.
APL will review the BAF on a quarterly basis, and continue to update our customers accordingly.
- Trade coefficient
o Trade Coefficient is defined as = Round Voyage Consumption of Fuel Oil (in ton) per trade divided by number of full TEU carried.
- Reefer cargo
o A 20% Reefer Consumption Surcharge will be implemented on top of the standard BAF with a minimum of USD$25/TEU.
- Bunker reference change (from IFO 380 to LSFO)
o To stay compliant with the IMO regulation that takes effect on 1st January 2020, APL will start bunkering with the new LSFO 0.5% sulphur (cost to be confirmed) from second half of 2019 onwards.
o Prior to 2020, the adjustments will be based on the variation between the average cost of one ton of IFO and the average cost of one ton of LSFO 0.5% at the date of review.
- Low Sulphur Surcharge
o For Latin America East-West Trade, Low Sulphur Surcharge will still be applicable on top of BAF for cargo served by port of loading (POL) and port of discharge (POD) in the ECA of North America and China.
Should you need any clarification please do not hesitate to contact your local APL Representative. Thank you for your business and continued support.