The rationale behind and effects of Bunker Adjustment Factors

The Bunker Adjustment Factor (BAF) system was first introduced following the oil shocks of the 1970s. The underlying justification for such a system was that shipping lines operating in freight conferences could not otherwise adjust their prices promptly enough to counteract the devastating effect of bunker price increases. Thirty years after its imposition, BAF has always been a bone of contention between carriers and shippers. Ocean carriers contend that it is a necessary evil to reduce their exposure to volatile bunker price, while shippers argue that this risk should either be considered as a normal commercial venture, or dealt with in a more transparent way. When bunker surcharges began to climb in 2003, BAF disputes became one of the main obstacles to the dialog between both parties. To settle the dispute over BAF, the Europe Commission (EC) called for the submission on the issue of surcharges.