Ocean freight basics - part 1

When running an ocean freight tender, you are going to have to decide on how to manage a number of surcharges. I this blog, we will cover one of the most common surcharges – BAF – and how it can be handled.

What is BAF?

The Bunker Adjustment Factor is an oceanfreight surcharge, used to balance the fuel impact.

This fee can be fixed or not. 

  • If it is fixed, the charge cost remains the same, according to the negotiated price. 

  • If the BAF is not fixed (or “floating”), it can be reviewed periodically, each 3 months for example, but the pure freight cost remain the same.

Usually the cost is per TEU, and so a BAF cost for 40D container would be the double of the cost for a 20D.

How does it impact your ocean freight cost?

  • If the freight cost is collected as all-in, BAF is included in the freight (and you don’t know the BAF part), 

  • If the freight cost is not all in : BAF is charged separately from the freight. It is usually excluded when the BAF is subject to be reviewed (floating for example).

How to play with BAF?

Of course, the good point with the BAF is that you can play to adjust your rates month after month to ensure that you are always paying a relevant BAF charge. But due to the often sharp increases and declines in fuel prices effecting the BAF surcharge’s volatility, it can often be better to adapt this validity.

If you want to know more or if you want further help managing your rates, TenderEasy is there to help you, both with knowledge and software that will allow you to manage different validities.

For example, our Rate Management module will allow you to use your valid tender to manage this component and open only the BAF charge to be updated by your suppliers giving you flexibility and keeping you closer to the market trends.

For further reading, check out part 2 of Ocean Freight Basics, where we investigate volume forecasting and why it matters for shippers.  

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