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What are the Differences Between BAF and CAF?
Are you still trying to figure out what the difference between BAF and CAF surcharges is?
We’re here to help.
Bunker Adjustment Factor (BAF) and Currency Adjustment Factor (CAF) surcharges both affect ocean freight rates, but for two entirely different reasons.
What is the Difference Between CAF and BAF?
CAF deals with rate adjustments due to fluctuations in exchange rates, and BAF deals entirely with fluctuations in oil prices that result in rate adjustments.
The only similarity between the two is that they’re both rate adjustments.
Now that you understand that these two rate adjustments are different, let’s delve into what these surcharges are and what you can do to offset them.
What are BAF surcharges?
Bunker Adjustment Factor (BAF) is a surcharge that carriers add to their rates to offset changes in fuel prices.
These surcharges safeguard carriers against fluctuations in oil prices. Carriers need to regularly calculate extra costs (BAF) when oil prices increase, as they may need to offset any significant fuel price increases. BAF surcharges are generally issued each month or every quarter.
What are CAF Surcharges?
The Currency Adjustment Factor (CAF) is a surcharge that enables carriers to offset currency fluctuations that can affect freight rates between the U.S. and Pacific Rim countries.
For example, if a company in the U.S. purchases products from Japan, their freight rate to ship the goods might be $1,700. After evaluating the potential volatility in the exchange rates, the carrier decides to charge a 10% CFA surcharge on its ocean freight rate. This is because they assessed that the U.S. dollar might depreciate 10% to the Japanese Yen.
As a result, the carrier will issue a CAF of 10% of the initial ocean freight rate, meaning, their rate with the CAF surcharge would be $1,870 ($1,700+$170=$1,870).
It’s also important to note that each carrier calculates CAF surcharges differently, but that these CAF amounts are usually similar.
Can I Avoid CAF and BAF Surcharges?
When it comes to offsetting these rate adjustments, you don’t have many options. Even the options you do have require you to have some bargaining power with your freight forwarder or carrier.
How to Offset CAF and BAF Surcharges
It may not always be possible to avoid CAF and BAF surcharges, but there are some tips to offset them. For example, as long as you gate in your shipment before any new CAF and BAF surcharges are enacted, you can avoid them.
Outside of this tip, the only other recourse you may have is to negotiate with your carrier. When it comes to your ocean freight, there is always room to negotiate. However, your power of negotiation heavily depends on how large your organization is and how much you ship. If you’re too small or don’t ship in medium to large volumes, it may not be possible to negotiate contracts to reduce your CAF and BAF surcharges.
Get Started on GreenX
CAF and BAF are important to understand, but these two surcharges are only two small aspects of your shipping. You might want to start thinking about a high-level approach to your shipping procedures, namely how you can get started on your digital transformation.
To get started on digitalizing your shipping, make sure to signup with our partner, Evergreen Marine, and get full access to their digital initiative, GreenX.