[khebab]

An interesting example of how fuel costs are directly impacting the world trade: the Bunker Adjustment Factor (BAF) is part of the so-called Agricultural Container Indicators.

from Agricultural Marketing Service: Bunker Adjustment Factor report - Ag Container Indicators:

Bunker Adjustment Factor (BAF) Increase Recommended by the Westbound Transpacific Stabilization Agreement. Carriers held BAF surcharges steady at $12 per metric ton during quarter 3, 2004 despite a 10 percent increase in world oil prices during quarter 2, 2004. However, recommendations from the WTSA and publicly filed tariff rates indicate a scheduled increase of $2 per metric ton for BAF surcharges during quarter 4, 2004. This increase will raise BAF surcharges to $275 per 40-foot container (see Bunker Adjustment Factor table). The additional $2 per metric ton will increase the cost of shipping a 40-foot container of hay by almost 6 percent. According to the WTSA, BAF surcharges are increased to $14 per metric ton when marine fuel prices top $200 per ton. The quarter 4, 2004 scheduled increase is indicative of higher marine fuel costs as a result of increasing world oil prices.

Crude oil prices remain high even though output by key Organization of the Petroleum Exporting Countries (OPEC) is at the highest levels since OPEC began tracking output levels in 1982 (Short-Term Energy Outlook, September, 2004). Prices are likely to remain high as inventories remain low and global oil demands rise. As of late October, spot prices for crude oil were at $54.89 per barrel; prices are expected to average above $40 per barrel well into 2005 (Short-Term Energy Outlook, October, 2004).
http://www.ams.usda.gov/tmd2/agci/Q304/BAF.gif
Bunker Adjustment Factor surcharge, compared with world oil prices

So What?
This change in BAF is significant, especially for exporters shipping lower valued agricultural commodities, such as hay and cotton, since it can increase the cost of a shipment by more than 30 percent. When all-inclusive rates are set in service contracts, shippers are typically not asked to pay the higher surcharge; however, these shippers may face the increases during contract renewals.

What is the BAF?
The BAF is a surcharge implemented by shipping lines to compensate for fluctuating fuel costs. It is also sometimes called "Fuel Adjustment Factor" or FAF. The surcharge is expressed either as a charge per ton or per container, depending on the type of base rate used.

This indicator is directly used in the calculation of the ocean rate on a per-weight (KT):

Container rate = [ocean rate x (KT)] + [ocean rate x (KT) x (CAF)] + [(THC) x (KT)] + [(BAF) + (KT)] + ARB

src: Ocean Freight Rate Bulletin

[Jack]

It occurs to me that this might have a strong impact on global trade.

Presently, manufacturing facilities are concentrated in a few areas; what happens to them as transportation costs increase?

That might have an interesting consequence in damaging the economy.

[khebab]

I was also surprised of the strong correlation between fuel prices and the BAF indicator. There is also around a one month delay between the two curves which is quite short. The good news is that the BAF is only an additive factor in the total cost calculation.

[Ercole]

It occurs to me that this might have a strong impact on global trade.

Presently, manufacturing facilities are concentrated in a few areas; what happens to them as transportation costs increase?

That might have an interesting consequence in damaging the economy.

We might be back to local production, for food, clothes, etc... They'll become cheaper than indian, african or chinese manufacturers when you include transport costs...

Farmers might be the largest employers of the 21th century !!! Even Cocaine from south america will be too expensive for the former NY yuppies !!!