HMM introduces BAF on Asia - Europe trade

Hyundai Merchant Marine (HMM) introduced a new scheme into the market relating to bunker surcharge, as weak shipping demand, excessive shipping capacity, poor freight rates and high operating costs are some of the primary problems now placing greater financing pressure on container shipping.

One of the most critical ingredients for a shipping line, being vessel owner and operator, has traditionally been oil prices. The Bunker Adjustment Factor (BAF) aims to reduce the risk exposure to oil price fluctuations.

But in reality, the BAF has invariably not been a separate surcharge from ocean freight since the adoption of different BAF formula’s due to market environment changes.

The average yearly fuel oil price has risen from USD 492/ton to USD 651/ton from 2009 to 2011, respectively, and reached USD 731/ton recently. Meanwhile, the all-in rate on the Asia/Europe westbound trade is now even lower than the amount of BAF announced. Furthermore, despite recent hikes in oil prices there seems to be no firm momentum that the BAF will be on a floating basis in the near future.

HMM notified the trade that together with the GRI of USD 700/TEU effective from March 1, 2012 for cargo moving into North Europe and the Mediterranean from all westbound origin countries (including Japan), a new bunker-related surcharge will also be introduced in the name of VOB (Variation Of BAF) for the first time in the market.

The methodology is that USD variances between current and coming months will be the quantum of the VOB and the new surcharge quantum will increase/decrease depending on HMM’s own BAF Tariff published through its homepage at www.hmm21.com every month without change in current formula.

The VOB will start at USD 80/TEU (e.g. the difference between USD 772/TEU in February and USD 852/TEU in March). For illustrative purposes, if the BAF tariff were then decreased to USD 800/TEU in the subsequent month, the applicable VOB amount would be USD 28/TEU.

The introduction of VOB enables HMM to maintain a high level of reliable scheduled liner services to facilitate customers’ supply chain management. < Korea Shipping Gazette >