What is FAF?

FAF stands for Fuel Adjustment Factor. It is a variable surcharge added to the base freight rate to reflect fluctuations in market fuel prices.

Fuel accounts for a significant portion of a carrier's operating costs, whether by road, sea, or air. Instead of revising freight rates every time the oil market fluctuates, carriers use
FAF as a flexible adjustment mechanism. When oil prices rise, FAF increases. When oil prices fall, FAF – in theory – decreases accordingly.

FAF is not fixed. It is adjusted monthly or quarterly, typically based on indices such as Brent crude or VLSFO (Very Low Sulphur Fuel Oil) prices at major ports. The surcharge you see on an invoice depends on three main factors:

• Route: Long-haul routes or those passing through Emission Control Areas (ECAs) often incur higher fuel surcharges.
• Mode of transport: Depending on whether the shipment is moved by road, air, or sea.
• Carrier: Each carrier sets its own FAF rate and adjustment schedule.

How does FAF differ from BAF and EBS?

These three surcharges are often confused, but they differ in scope and purpose:

• FAF: Broadly applied (road, air, and sometimes sea).
• BAF (Bunker Adjustment Factor): Primarily used in sea freight.
• EBS (Emergency Bunker Surcharge): An emergency surcharge applied when oil prices spike suddenly.

Key points to note:

• FAF/BAF: Adjusted periodically.
• EBS: A short-term reaction to abnormal market volatility.

In the current climate, EBS may appear alongside FAF on certain routes affected by oil supply disruptions.

Common Methods for Calculating FAF

There is no universal formula. Carriers generally calculate FAF using one of three methods:

1. Percentage of the base rate
The most common method. FAF is calculated as a percentage of the base freight rate.
Example: Base rate USD 1,000 + 10% FAF = an additional USD 100.

2. Per unit of cargo
A fixed rate applied per container (FCL), per CBM (LCL), or per kg (air freight). This method makes costs easier to forecast for high-volume shipments.

3. Tiered pricing based on oil prices
Some carriers use a sliding scale: FAF increases as oil prices cross certain thresholds and drops closer to zero when prices fall. This approach is transparent but less common.

The FAF rate on your invoice depends on the carrier, the route, and the time the quote is finalised.

Who pays the FAF?

This depends on the agreed Incoterms:

• CIF or CFR: The seller arranges and pays for the freight – FAF is included in the seller's costs.
• FOB or EXW: The buyer is responsible for transport – FAF will appear directly on the buyer's freight invoice.

This is crucial during contract negotiations. Buying under CIF terms means FAF is already factored into the supplier's price – you might not see it itemised, but it is there. If you buy FOB and manage the freight yourself, you will see FAF clearly listed on the invoice.

How to Control FAF Costs

FAF is a market-driven cost – it cannot be eliminated entirely, but it can be managed.

• Negotiate all-in rates: For regular, high-volume routes, some forwarders can provide a fixed rate inclusive of FAF for a specified period. This removes short-term volatility – however, you may miss out on savings if oil prices drop significantly during the contract term.
• Monitor fuel price trends: FAF adjustments usually lag behind Brent crude or VLSFO fluctuations by about 4–8 weeks. Tracking indices like Ship & Bunker helps you anticipate upcoming price increases, allowing you to finalise quotes or adjust shipping schedules accordingly.
• Optimise cargo weight and volume: For LCL or air freight – where FAF is calculated per CBM or kg – more compact packaging translates to a lower FAF.
• Request transparent quotes: A reliable forwarder should be able to clearly itemise every charge: base rate, FAF, BAF, EBS, and other surcharges. If a quote only provides a vague "all-in" figure without details, request a full breakdown.

 
EBS – Emergency Bunker Surcharge

EBS (Emergency Bunker Surcharge) is a temporary fee applied when oil prices increase so abruptly that the current FAF/BAF no longer covers the carrier's costs. EBS is added on top of FAF/BAF, rather than replacing them. This charge is often introduced at very short notice.

This is precisely the situation currently unfolding. Since February 2026, Brent crude prices have surged due to disruptions in the Strait of Hormuz, prompting several carriers to activate EBS on affected routes. Even as the situation in Hormuz gradually stabilises, freight costs typically do not adjust immediately – EBS may continue to appear on invoices for one to two billing cycles after the initial shock has passed.

Frequently Asked Questions (FAQ) about FAF

• Is FAF mandatory?

Yes. FAF is a standard surcharge applied by most carriers to reflect fuel price volatility. In practice, businesses almost always have to pay this fee when using transport services.

• Is FAF invoiced?

Yes. FAF is usually shown on the freight quote or invoice as part of the total service cost and is subject to applicable taxes. (The exact presentation may vary depending on the carrier or forwarder).

• Can FAF be negotiated?

Not directly in the sense of "discounting the FAF itself", as it is a market-driven surcharge. However, businesses can:

• Negotiate an all-in rate that includes FAF.
• Work under long-term contracts to stabilise costs.
• Leverage high shipping volumes to optimise overall transport expenses.

FAF is an integral part of international freight costs. With severe fluctuations in oil prices, understanding how FAF operates helps businesses proactively plan budgets, negotiate contracts, and protect profit margins.

For detailed advice on freight rates and optimal surcharge management solutions for your business in Viet Nam, please contact our team via the hotline: +84-909-026-261.

• Head Office: Suite 6.01, Block A, RiverGate Residence, 151-155 Ben Van Don, Khanh Hoi Ward, HCMC, Viet Nam
• Email: info@vlc.com.vn
• Phone: +84-28 382 67312 - Hotline: +84-909-026-261
• Website: https://vantage-logistics.com