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Fuel-Cost Indexing Mechanism Set Up for IMO 2020

- - ENVIRONMENTAL - Set Up For IMO 2020

Fuel-Cost Indexing Mechanism Set Up for IMO 2020

Guide aims to help shippers monitor and control bunker charges as shipping lines switch to the more expensive fuel required under the IMO 2020 low-sulphur regulation. With fuel surcharges set to increase sharply, a shipper lobby group has produced a toolkit to make extra charges more transparent A BUNKER adjustment factor indexing mechanism and bunker charge guide has been published to help shippers monitor and control bunker charges as carriers switch to the more expensive bunkers required under the IMO 2020 low-sulphur regulation.

The mechanism was drawn up by group of 10 European shipper experts asked by the European Shippers’ Council and container shipping analyst Drewry to gather views and best practices on low-sulphur fuel-related issues. “By giving shippers the possibility to better analyse present and future types of fuel costs, this toolkit is representing a significant step towards a more transparent framework for the best interests of all parties,” said Jordi Espín, the council’s policy manager.

Philip Damas, head of Drewry Supply Chain Advisors, said the toolkit and its indexing mechanism would help improve transparency and fairness in how extra fuel costs incurred by shipping lines and forwarders caused by the new regulations were passed on shipper. “Independently of this initiative, Drewry has also developed an IMO cost impact calculator for shippers who are reviewing their bunker adjustment factors, which quantifies bunker consumption per trade lane and per container for their main carriers.” The index aims to streamline the process of adjusting bunker adjustment factors by identifying common standards and definitions on bunker price measurement periods, fuel reference prices and transparent indexing formulae.

The mechanism includes a pure indexing mechanism, without bunker adjustment factor prices, which needs to be agreed commercially between parties before the start of the shipping contract.

The first step of the process is that the shipper and the provider agree on the “baseline” initial bunker charges and the link to the baseline external fuel price (at the start of the contract).

The first step of the process is that the shipper and the provider agree on the “baseline” initial bunker charges and the link to the baseline external fuel price (at the start of the contract).

Next, during the period of the contract, revised bunker charges are calculated based on the previous quarter’s average price for the external fuel reference, and apply contractually to the following quarter (with no need for negotiation).

Bunker adjustment factor charges are updated once a quarter with a lag time of one month to allow parties to update their respective invoicing and purchasing systems. Consideration is given to an additional “interim” adjustment to address the risk of huge volatility in the early prices of the new fuel. The indexing mechanism tracks and applies the change seen in any relevant bunker price index — global, basket of regional or regional — as compiled and published by any neutral third party.

Source: Lloydlist

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