Calculation of Bunker Fuel, Currency, and Inland Freight Fuel Price Adjustment Factors for USTRANSCOM Commercial Shipping Contracts

Military units that move equipment and supplies to and from points around the globe rely on USTRANSCOM to provide sea, land, and air shipping services when needed. USTRANSCOM, for 95% of all tonnage moved, contracts for intermodal shipping services from regularly scheduled commercial carriers. The offered rates—per measurement ton or per Twenty-foot Equivalent Unit (TEU)—apply to a given origin-destination pair for as much as 17 months from the time the offers are made. During that interval, prices of fuel and foreign currencies may fluctuate. In order to shift some of this volatility risk to shippers, carriers apply price adjustment factors to their published ocean and inland rates to compensate the carriers (or the shipper) for price changes. The specific adjustments apply to bunker and diesel fuel for ships, selected foreign currencies, and surface transportation fuel. This study describes the theoretical and practical considerations in designing these three types of price adjustment factors, and proposes methods for calculating the technical factors and their components.