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Nov 8, 2016 Blog

What is the impact of bunker fuel prices on shipping costs?

The shipping industry carries a huge load of the world trade. With their growing influence, fuel costs have become a major determinant for the industry. In the past few years, a lot of research has been conducted to understand the impact of marine fuels, like bunker oil, on overall shipping costs.

You must know that bunker fuel is the most convenient method of fueling container ships. The pricing of this fuel is affected by the BAF or Bunker Adjustment Factor along with prevalent crude prices.

Therefore, to understand the impact of its prices on the shipping industry, you need to know the BAF – Bunker Adjustment Factor.

What is Bunker Adjustment Factor?

Historically, there have been fluctuations in the availability of marine fuels. These variations can have a lasting impact on bunker fuel prices. Carriers could hardly quote stable freight rates to clients. Hence, the Bunker Adjustment Factor came into effect. BAF reflects the price variations in fuel rates. This factor is a high-cost surcharge and is adjusted every quarter. When quoting shipping rates, carriers will add in this surcharge to the base freight.

Is There Any Impact of Bunker Oil Rates on Shipping Costs?

It can be hard to find a direct relationship between these two. Bunker fuel has many different variants like IFO, MGO, MFO, HFO, and MDO. Each of these variants has different pricing determined according to its refinement costs. In many cases, bunker fuel prices may be lower for shippers due to the impact of the BAF. However, these prices may not be commensurate with overall fuel prices prevalent in the market.

Is There Any Impact Of Crude Oil Prices On Bunker Oil Prices?

The shipping costs or freight rates are affected by many inclusive charges including crude oil charges. However, the same crude oil prices may not affect bunker oil rates directly due to the following reasons:

Different Types of Fuel:

Bunker fuel is entirely different from crude oils. Every type of fuel is extracted from the crude. However, their properties differ according to their refinement process. Bunker oil is the residual fuel left after the refinement process. Therefore, there is no direct relation between crude oil prices and bunker oil rates.

Vary Per Port Location:

The cost of transporting bunker oil from a distant refinery can be extremely high due to the excessive weight of this fuel. It is mostly stored near ports for easy bunkering. Processing bunker fuel will be higher for ports having smaller refineries. This factor is not considered important for crude oil prices.

Changed As Per Quarterly Adjustments:

Ocean carriers calculate BAF on a quarterly basis. The BAF uses weekly average prices of the prior months and the charges applicable for the new quarter. Whenever a change in the crude oil price occurs, this variation will be reflected in bunker oil prices for the next quarter.

You only need to know the current bunker oil rates for determining the shipping costs.

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The shipping industry carries a huge load of the world trade. With their growing influence, fuel costs have become a major determinant for the industry. In the past few years, a lot of research has been conducted to understand the impact of marine fuels, like bunker oil, on overall shipping costs.

You must know that bunker fuel is the most convenient method of fueling container ships. The pricing of this fuel is affected by the BAF or Bunker Adjustment Factor along with prevalent crude prices.

Therefore, to understand the impact of its prices on the shipping industry, you need to know the BAF – Bunker Adjustment Factor.

What is Bunker Adjustment Factor?

Historically, there have been fluctuations in the availability of marine fuels. These variations can have a lasting impact on bunker fuel prices. Carriers could hardly quote stable freight rates to clients. Hence, the Bunker Adjustment Factor came into effect. BAF reflects the price variations in fuel rates. This factor is a high-cost surcharge and is adjusted every quarter. When quoting shipping rates, carriers will add in this surcharge to the base freight.

Is There Any Impact of Bunker Oil Rates on Shipping Costs?

It can be hard to find a direct relationship between these two. Bunker fuel has many different variants like IFO, MGO, MFO, HFO, and MDO. Each of these variants has different pricing determined according to its refinement costs. In many cases, bunker fuel prices may be lower for shippers due to the impact of the BAF. However, these prices may not be commensurate with overall fuel prices prevalent in the market.

Is There Any Impact Of Crude Oil Prices On Bunker Oil Prices?

The shipping costs or freight rates are affected by many inclusive charges including crude oil charges. However, the same crude oil prices may not affect bunker oil rates directly due to the following reasons:

Different Types of Fuel:

Bunker fuel is entirely different from crude oils. Every type of fuel is extracted from the crude. However, their properties differ according to their refinement process. Bunker oil is the residual fuel left after the refinement process. Therefore, there is no direct relation between crude oil prices and bunker oil rates.

Vary Per Port Location:

The cost of transporting bunker oil from a distant refinery can be extremely high due to the excessive weight of this fuel. It is mostly stored near ports for easy bunkering. Processing bunker fuel will be higher for ports having smaller refineries. This factor is not considered important for crude oil prices.

Changed As Per Quarterly Adjustments:

Ocean carriers calculate BAF on a quarterly basis. The BAF uses weekly average prices of the prior months and the charges applicable for the new quarter. Whenever a change in the crude oil price occurs, this variation will be reflected in bunker oil prices for the next quarter.

You only need to know the current bunker oil rates for determining the shipping costs.

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