Bunker fuel

Who owns the bunker fuel?

Under a voyage charter, the owner pays all voyage costs, including fuel, and prices the freight to cover them. The bunkers on board are the owner's inventory and become an expense as they are burned. Under a time charter, the charterer pays for the fuel the vessel consumes while at its disposal and controls the bunkers on board; the owner's hire covers only the vessel and crew. Bareboat charterers likewise buy their own fuel. So the same tonnes of fuel can belong to different parties as a vessel moves from one charter to another.

Bunker fuel on delivery into a time charter

An owner's vessel finishes a voyage and is delivered into a time charter with 800 tonnes of very low sulphur fuel oil on board, carried in inventory at US$ 560 a tonne, 448 thousand. The charter requires the charterer to buy the bunkers on board at delivery at 600 a tonne, 480 thousand.

The owner derecognises the bunkers at their cost of 448 thousand and recognises the 32 thousand difference as a gain, which most owners present within voyage expenses rather than as revenue, because selling fuel is incidental to chartering the vessel. The charterer records 480 thousand of fuel inventory. When the charter ends, the owner buys back the bunkers on board at the redelivery price set in the charter, adding them to its inventory at that price, and the charterer recognises any gain or loss against its own cost.

How are bunkers measured?

Under IAS 2, at cost, using first-in, first-out or weighted average, including delivery costs such as barging. When bunker prices fall, owners ask whether to write the fuel down to net realisable value. IAS 2 does not write down materials held for use in production if the finished products are expected to be sold at or above cost, and fuel held for use on voyages is treated the same way: if the voyages are expected to be profitable, no write-down is needed. Fuel held for sale, or on a vessel about to be sold or laid up, is measured at the lower of cost and net realisable value. See net realisable value.

How do bunkers affect voyage accounting?

For an owner on voyage charters, bunkers burned during the voyage are voyage expenses, recognised as they are consumed. Fuel burned sailing to the load port after a charter is fixed can be capitalised as a cost to fulfil the contract and spread over the voyage. Freight with a bunker escalation clause, where the freight adjusts with fuel prices, has variable consideration, estimated and constrained under IFRS 15. Lost or excess fuel compared with the charter's consumption warranties can lead to claims between owners and time charterers, accounted for when they are probable and measurable.

How are bunker surcharges treated by liner companies?

Container lines charge customers a bunker adjustment factor or fuel surcharge on top of the base freight, adjusted periodically for fuel prices. It is not a separate service: it is part of the transaction price for the transport and recognised with the freight as the service is provided. Surcharges are revenue, and the fuel they cover is a cost; the line does not net them.

What about emissions costs linked to fuel?

Since 2024, the EU Emissions Trading System has required shipping companies to surrender allowances for emissions from voyages to, from and between EU ports, phased in over 2024 to 2026. The obligation falls on the shipping company responsible under the rules, often the owner or manager, but standard charter clauses pass the cost to time charterers, who control fuel use. The owner recognises its liability as emissions occur and a matching receivable from the charterer when the charter allows recovery. See emissions allowances.

How is bunker price risk hedged?

Owners on voyage charters and liner companies hedge forecast fuel purchases with bunker swaps priced on fuel indices at major ports. Under IFRS 9, these can be cash flow hedges of highly probable purchases, with the effective gains and losses held in equity and included in the cost of the fuel when bought. Where the swaps reference crude oil rather than fuel oil, a risk component can be designated if it is separately identifiable and reliably measurable. See airline fuel hedging, which works through the same mechanics, and shipping accounting.

This guide is general information. It is not tax or legal advice for your situation.