CAF (Currency adjustment factor). Liner conferences are fundamentally international in character. The member lines are based in different countries and their domestic revenue and expenses figures will generally be in their own currencies.
Their earnings and operating expenses on the routes served by the conference may also be in different currencies. To introduce some uniformity, the rate of freight of a liner conference is expressed in a single currency although freight can actually be paid in some other transferable or convertible currency. The common tariff currency is the United States dollar.
Since 1971, the U.S. dollar has been allowed to “float” against most of the currencies of the countries in which member lines are based. Since both disbursements and freight can be paid at different rates of exchange to the U.S. dollar, the volatility of the value of the dollar can cause member lines’ disbursements to increase in terms of the tariff currency while the freight collected can decrease.
Liner conferences impose a surcharge to minimise the effects of this volatility. This is commonly called the CAF, the reason for which is to restore the parity of value of the member lines’ income and expenditure in terms of the tariff currency to the net level at which the tariffs were calculated. The CAF is calculated according to a formula depending on a mix or basket of currencies”, the composition of which varies according to the area served by the conference, because some currencies may be devaluated and some of a higher value than the tariff currency, the US dollar. Conferences adopt CAFs by areas of shipment in order to avoid unfair treatment of shippers in some countries to the disadvantage of shippers in other countries.
The CAF formula takes into consideration the volume of cargo moving from each loading area to each discharging area, the nationality of the carrying line, the line’s voyage expenses in the ports of loading and discharging and the operating costs in the line’s own currency (such as crew costs and insurance). Some conferences adopt a monthly review of the formula and others a quarterly review before publishing any changes to the CAF. The customers are usually given a period in which they can object and also to plan the costs of their shipments.