Fuel Surcharge Practices Of Container Shipping Lines And Comparison With Fuel Cost

In recent years, bunker oil is a considerable expense. According to Germanischer Lloyd (LSE, 2010),the fuel bill for a 8000 TEU ship accounts today around 50-60% of its operating costs, a 33% increase compared to three years ago. This impressive growth has led shipping lines to adapt their operating practices on bunker management using cheaper fuel grade alternatives, improving vessel design, reducing vessels'speed adding capacity or dropping the number of ports of call in order to keep a weekly frequency in services and hedging against future bunker price variations.This paper deals with shipping lines'practices of levying a fuel surcharges on shippers, also known as the Bunker Adjustment Factor or BAF. Shipping lines have more than once argued that the increase in bunker prices, especially in the short term, is only partially compensated through surcharges to the freight rates. In contrast, shippers have always objected that the way BAFs are determined is opaque, without uniformity, and involves a significant element of revenue-making.This paper contributes to this issue in focusing on the relationship between fuel costs fluctuations and fuel surcharging practices. The central research questions put forward are as follows: How have shipping lines changed their practices regarding BAF, considering the end of the liner conference era in Europe? How can bunker costs be estimated for a specific service? Can it be concluded, as stated by shippers, that BAFs are used by shipping lines to generate additional revenue or are they only, as stated by ship-owners, used to recover bunker costs and to cope with their unexpected fluctuations? To answer these questions, we apply a cost model to various routes and compare our estimates on fuel costs with the observed BAFs on a set of port-to-port liner services.