what is the meaning Bunker surcharge in maritime law and shipping law?

The bunker surcharge is a surcharge on the freight reflecting fluctuations in
the price of fuel, aimed at ensuring that shipping lines are not out of pocket
as a result of such fluctuations. The need for this surcharge arose suddenly
in 1974 when oil prices quadrupled. Fuel then became a significant element
in the shipowner’s costs (to a lesser extent it still is, although, because of the
high prices reached by bunker prices, shipowners have striven to find ways of
reducing consumption).
Around the world, this and other surcharges were commonly set by liner
conferences, groupings of shipping lines with common tariffs and rates.
Conferences have been abolished in many parts of the world, and in Europe
in particular it is no longer legal for shipping lines to agree a common bunker
surcharge, or even to use a common formula for determining the level of
any bunker surcharge. There is equally no agreement between lines as to the
frequency of changes to the level of this surcharge, or the amount of notice
required to be given to the trade.
Whether the surcharge is determined by a grouping of shipping lines or
individual lines, the basic data needed to calculate the bunker surcharge are
as follows:
● average prices of fuel, often weekly or monthly, based on published prices
or indices for relevant ports
● average vessel size
● fuel consumption
● steaming time
● vessel’s capacity, for example in teu’s
Worldwide, fuel is quoted and purchased in US Dollars and when a tariff currency
is also the US Dollar, the bunker surcharge can neatly be expressed in
that currency. It should be noted, however, that any fluctuation in the value of
the Dollar in relation to the cost currencies should be allowed for in the currency
adjustment factor. The bunker surcharge should therefore only change
when fuel prices fluctuate.
As with the currency adjustment factor, the bunker surcharge can be negative
as well as positive since fuel prices can fall as well as rise.
So that minor fluctuations in the prices of fuel do not, in turn, mean constant
alterations to the bunker surcharge, most shipping lines and liner conferences
will only change the level of the surcharge when the price changes by
a certain minimum percentage, known as a trigger point. The percentage
varies from case to case. Changes to the bunker surcharge may be monthly or
quarterly, or at some other interval according to the particular shipping line;
this is normally subject to notice – often one month – being given to shippers.
Some shipping lines combine the currency adjustment factor and the
bunker surcharge. The lines calculate the two elements separately, then add
them together and express tem as a single percentage of the freight. The two
elements may be published for the purposes of transparency. This combined
surcharge is known as a currency and bunker adjustment factor. Since the
two constituent elements of this surcharge can be negative, or their combined
result negative, the surcharge itself can therefore be negative. Trigger points
exist for this surcharge in the same way as they do for the surcharges when
quoted and used separately. The difference is that the currency and bunker
adjustment factor will only change when the combined effect of the movements
in the two reaches the minimum level required to trigger an increase.
The bunker surcharge is also termed bunker adjustment factor, fuel oil
surcharge, fuel adjustment factor, interim fuel participation and, in at
least one case, bunker utilisation contribution. To reinforce the temporary
nature of this surcharge, some lines have imposed an emergency bunker
adjustment factor or emergency bunker surcharge.
A low sulphur surcharge may be shown as a supplement to the bunker
surcharge in some trades where vessels are operated in areas subject to regulations
requiring vessels to burn a low sulphur content fuel. Alternatively a low
sulphur component may be incorporated into the bunker surcharge.
It is not unusual to find a bunker surcharge provided for in a voyage charter
for several consecutive voyages since the duration of the charter is relatively
long and the shipowner is thus protected against fluctuations in fuel prices
over that period (in the case of time charters, it is the charterer who pays for
fuel, not the shipowner so there is no need for the owner to protect himself
with a bunker surcharge clause).