Hamburg Süd Bunker Adjustment Factor in 2020

(Morristown, NJ)…On January 1, 2020 a new regulation from the International Maritime Organization (IMO), a specialized UN agency, will require all shipping companies to switch to cleaner fuels with a maximum sulphur content of 0.5%.

Hamburg Süd fully supports this regulation. It will deliver a significant benefit to the environment as well as to human health by reducing sulphur pollution from shipping by more than 80%.

Hamburg Süd will primarily comply by using low sulphur fuels. We have also decided to invest in a relatively limited number of scrubbers; the use of LNG is only relevant for new built ships. It is important to note that these alternative options also come at significant cost. Overall, we expect that more than 90% of all vessels in the shipping industry will use low sulphur fuels to ensure compliance when the regulation commences in January 2020.

In light of the above there is significant uncertainty in regards to fuel prices in 2020. However, we expect that fuel prices will increase significantly in light of the stricter emissions criteria and thus the need for greater refining capacity and more sophisticated refining techniques for marine fuels. While we will start purchasing compliant fuel (i.e. 0.5% sulphur) during Q4 2019 the exact cost of this new fuel type has not yet been published by global fuel oil producers.

We will provide our customers with more information as it becomes available and will seek to publish the new Bunker Cost Adjustment Factor including this fuel type as far in advance as possible to allow you to plan accordingly.

The shipping industry cannot absorb this increased cost from the new IMO regulation: we have to pass it on to our customers. It is only fair, however, that we provide our customers with predictability around the extra costs to also enable you to make the necessary adjustments to freight budgets and further to the transportation cost component in your product prices.

Therefore, we have designed a Bunker Adjustment Factor (BAF) which reflects actual costs, and where the tariff is predictable.

Hamburg Süd’s new BAF formula is as follows:

Fuel price x Trade factor = BAF

The Trade Factor is calculated based on:

  • Actual fuel consumption per loaded container on the trade (ton/TEU) which is mostly influenced by trade distance and efficiency of the ship type employed
  • Trade imbalance factor, i.e. the head-haul of a trade will take more of the cost than the backhaul

The fuel price is calculated as the average fuel price for the last three months prior to the BAF tariff review (source: Bunkerworld) in key bunkering ports (Rotterdam, Singapore, Panama, Fujairah).

Starting with the Q1 2020 BAF review, the fuel type for the calculation will change from IFO 380 to the new low sulphur fuel (<0.5% sulphur). Increased costs will be directly reflected in the BAF tariff.

A sample BAF calculation at hypothetical fuel prices would look as follows:

Bunker Price Period IFO 380
Low sulphur fuel (<0,5%)
Trade Factor
Far East to US West Coast
Mar-19 $420 - 0.88 Q3 2019 $370
Apr-19 $420 - 0.88 Q3 2019 $370
May-19 $420 - 0.88 Q3 2019 $370
Jun-19 $380 $590 0.88 Q4 2019 $334
Jul-19 $380 $590 0.88 Q4 2019 $334
Aug-19 $380 $590 0.88 Q4 2019 $334
Sep-19 $400 $600 0.88 Q1 2020 $528
Oct-19 $400 $600 0.88 Q1 2020 $528
Nov-19 $400 $600 0.88 Q1 2020 $528

Our intention is to review the BAF tariffs on a quarterly basis as per current custom. However, in light of the potential volatility in fuel prices during the initial months of 2020 following the introduction of this new regulatory change we will undertake a monthly review if the fuel price has changed more than 50 USD since the last adjustment. We will only change the BAF tariff if the average fuel price has gone up or down by more than 10 USD since last adjustment.

Please contact your Hamburg Süd representative with any questions that you may have.