On documents related to the valuation of a particular cargo shipment, there are always several markings, which should be deciphered by every importer. One of them is the mysterious abbreviation BAF. It is a freight/fuel surcharge, i.e. additional fees charged by transport and forwarding companies in the case of variable costs incurred during the carriage process. The purpose of the BAF add-on is to offset the costs incurred, which are dependent on changes in oil prices and currency fluctuations.
What is BAF?
BAF (Bunker Adjustment Factor) is a fuel adjustment. In other words, it is a mechanism that operates automatically to adjust applicable transportation rates depending on fuel prices. As it is commonly known, these prices change very dynamically, that's why BAF in transport is so important, especially for forwarding companies, because in their case the price for fuel constitutes a considerable percentage of the whole transaction, i.e. incurred costs of goods transport. This is why transport companies use the solution of adding an appropriate percentage of the fuel surcharge to their services, in addition to the applicable base rates.
What is the mechanism of calculating the BAF fuel surcharge?
The calculation of the BAF fuel surcharge is always governed individually by the individual forwarding company, however, it is usually calculated based on the average wholesale price per 1 m3 of diesel at the price applicable in the preceding month. The data collected are consistent with those published by PKN Orlen. Importantly, shipping companies have the right to change their calculations and are not obliged to inform about it.
CAF - another, equally important abbreviation
While getting acquainted with the details of BAF, it is also worth mentioning CAF (Currency Adjustment Factor). This is a currency allowance that, like the fuel allowance, is related to controlling currency fluctuations based on profit and loss analysis. CAF is intended to cover partial costs incurred by forwarding companies when settling with other entities in the transport industry that use a different currency. Most often the value of the currency allowance is set once a month, but it can change dynamically, depending on the individual arrangements of the forwarder.
The specifics of forwarding and transport companies settlement
In the case of BAF and CAF, it is also worth exploring the subject of the specificity of settling freight forwarding companies. The value of their income is affected by many factors, among which we can mention the distance and type of transport route, the area of provided services, including the location of the loading and unloading place, as well as the type and value of the cargo itself. Additionally, the method of packaging and the size of the single consignment (weight and volume), as well as transportability are important. Also important is the seasonality of demand and prices, holidays during the provision of services, and the scope of additional activities. All of the above factors influence the final price list of the forwarder, as well as BAF, CAF or road surcharge related to the use of toll roads.