CAF – Currency Adjustment Factor
Currency Adjustment Factor (CAF) is a surcharge introduced by shipping companies in international container transport to compensate for financial risks arising from currency exchange rate fluctuations. This surcharge is typically charged as a percentage of the freight rate or as a fixed amount per transported container, or per unit TEU (Twenty-foot Equivalent Unit).
- Main purpose of CAF: Protect carriers from losses caused by movements in exchange rates between the billing currency (most often USD) and currencies in which the carrier pays its costs (EUR, JPY, CNY, etc.).
- When it is used: CAF is applied especially on trade routes with high currency volatility, such as Asia-Europe, USA-Asia, Latin America, etc.
- Typical form: Percentage of the base rate or fixed surcharge per container (e.g., 4%, 8%, 12 USD/TEU, etc.).
Official definition (source GW-World):
“Currency Adjustment Factor (CAF) – adjustment for exchange rate fluctuations in various currencies.”
Deeper Analysis: Why CAF Exists and How It Works
The Problem of Currency Volatility in Global Trade
International maritime transport is a complex process where different currencies, jurisdictions, and markets intertwine:
| Type of Cost | Example Currency of Expenses | Example Region |
|---|---|---|
| Port fees | CNY, EUR | China, Europe |
| Fuel (bunker) | USD | Worldwide |
| Crew wages | USD, PHP | Worldwide |
| Terminal handling | EUR, JPY | Europe, Japan |
| Administration | DKK, EUR | Denmark, EU |
Risk: Freight rates are often agreed in USD, but costs arise in various currencies. If the exchange rate changes between the time the service is ordered and when costs are paid, it can significantly affect the carrier’s profitability.
Practical example:
- Contract: Export from USA to Germany for 2,000 USD.
- At exchange rate 1 USD = 0.95 EUR: 2,000 USD = 1,900 EUR.
- If USD weakens to 0.90 EUR: 2,000 USD = 1,800 EUR, the carrier loses 100 EUR on each container.
CAF is a mechanism for sharing this risk between the carrier and the customer.
How is CAF Calculated?
There is no single worldwide formula. Most shipowners and shipping companies use average exchange rates from the last quarter, month, or period to eliminate extreme fluctuations.
Typical calculation:
- CAF (%) = [(New exchange rate / Base rate) – 1] × 100
- CAF charge = Base rate × CAF (%)
Calculation example:
- Base rate: 1,000 USD
- CAF: 4%
- Resulting CAF charge: 40 USD
- Total: 1,040 USD
In practice:
- Some companies set a fixed amount per TEU (e.g., 12 USD/TEU).
- Others use a percentage surcharge that is regularly updated according to developments in foreign exchange markets.
Tips from practice (MBMLog, Xeneta):
- During periods of stable exchange rates, CAF can be zero.
- Significant currency fluctuations lead to higher CAF.
- CAF is a separate line item on the shipping invoice.
Context and Application of CAF
Where and when is CAF applied?
| Region | Probability of CAF Application | Specifics |
|---|---|---|
| Asia – Europe | High | USD/EUR/CNY/JPN volatile routes |
| USA – Latin America | Medium to high | Frequent currency fluctuations in the region |
| Intra-European | Low (EUR dominant) | Usually not necessary |
| Czech Republic – Asia | High | CZK/USD/EUR movements, longer payment terms |
- CAF is typically charged on transactions where an all-inclusive rate has not been agreed.
- Large customers can negotiate including CAF in a fixed price (higher base rate).
- The CAF amount is updated monthly, quarterly, or in case of significant exchange rate changes.
Difference between CAF and BAF
| Surcharge | Reason | What it Compensates | Typical Currencies |
|---|---|---|---|
| CAF | Currency risk | Exchange rate fluctuations | USD, EUR, JPY |
| BAF | Commodity | Fuel price fluctuations (bunker) | USD |
Note: Both surcharges can be charged simultaneously and significantly affect the final shipping cost.
Impact on Customers and CAF Management Strategies
CAF represents a volatile component of total shipping costs. For importers and exporters, CAF represents the risk of unexpected price increases during contract execution.
Recommended CAF management strategies
1. Negotiating an “all-inclusive” rate
- Contractually fixed price including all charges, including CAF.
- Advantage: Budget predictability.
- Disadvantage: Typically higher price (carrier transfers risk).
2. Payment in carrier’s currency
- Option to pay directly in USD/EUR and assume exchange rate risk yourself.
- Suitable for companies with strong currency management.
3. Financial hedging
- Use of currency derivatives, forward contracts.
- Suitable for large volumes, requires knowledge of financial markets.
4. Agreement on current exchange rate on invoice date
- Transparent, customer benefits from strengthening of own currency, bears risk of weakening.
- Risk: Cost fluctuations, more difficult budgeting.
5. Emphasis on contract documentation
- The contract must clearly state:
- Whether and how CAF is applied.
- Calculation methodology.
- Source of exchange rate (e.g., ECB, Oanda).
- Decisive date for exchange rate application.
Practical Benefits and Importance of CAF in Today’s Logistics
CAF is an integral part of modern maritime logistics and global supply chain. Its proper understanding and management are among the key competencies of every logistics professional and trader.
- CAF protects carriers: It allows them to plan cash flow and investments without fear of exchange rate losses.
- CAF increases demands on customers: They must monitor not only physical logistics but also macroeconomic factors.
- Supply chain: CAF enables stable functioning of global trade in an environment of freely floating currencies.
Structure of CAF in Maritime Invoicing
The shipping invoice often contains:
| Item | Description |
|---|---|
| Ocean Freight | Base rate for container transport |
| BAF | Surcharge for fuel price fluctuations |
| CAF | Surcharge for currency risk |
| THC | Container handling charge at port |
| Other surcharges | E.g., War Risk Surcharge, Congestion Surcharge |
Invoicing example:
- Ocean Freight: 1,200 USD
- BAF: 60 USD
- CAF: 40 USD
- THC: 90 USD
- Total: 1,390 USD
Related Terms and Abbreviations
| Abbreviation / Term | Meaning |
|---|---|
| BAF | Bunker Adjustment Factor (fuel surcharge) |
| THC | Terminal Handling Charge (handling charge) |
| TEU | Twenty-foot Equivalent Unit (20′ container) |
| FEU | Forty-foot Equivalent Unit (40′ container) |
| FCL / LCL | Full / Less Container Load |
| ETA / ETD | Estimated Time of Arrival/Departure |
| CFS / CY | Container Freight Station / Container Yard |
| Surcharge | Additional charge to standard rate |
| Incoterms | International commercial terms |
Advice for Buyers and Exporters
- Monitor carrier announcements: CAF amounts can change every month.
- Request clear invoices: CAF must always be clearly itemized.
- Compare offers: Some carriers may include CAF in the all-in price.
- Consult with experts: For large volumes, it is advisable to involve a financial advisor for currency hedging.
CAF as a Key Component of Modern Supply Chain
Currency Adjustment Factor (CAF) is an essential tool of global logistics that ensures financial stability for carriers and smooth functioning of world trade. With increasing currency volatility and market globalization, knowledge of CAF principles and the ability to manage it effectively is crucial for any company using container transport. Transparency, contract clarity, and an active approach to financial planning are key to minimizing the negative impacts of CAF on your business.
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