The impact of international shipping on UK pot-holes

BCIS has developed a new proxy index for Bitumen Emulsion for use in the Price Adjustment Formulae Indices (PAFI). These are widely used to allow for inflation on roads maintenance contracts.

Until December 2019, the Bitumen Emulsion Index used in the PAFI has been linked to the movement in heavy fuel oil.

The main market for heavy fuel oil is as ‘bunker fuel’ used to power ships engines, which release significant amounts of sulphur into the environment when burnt. The International Maritime Organisation (IMO) has set a limit on sulphur emissions that came into effect on 1 January 2020, which will restrict the use of heavy fuel oil. This will impact the market and therefore the price of heavy fuel oil, but not prices for bitumen emulsion.

BCIS has consulted manufacturers, suppliers and purchasers of bitumen to get an understanding of how prices are set. As it is an extremely competitive market, there is reluctance from manufacturers and suppliers to provide prices. However, they have provided information that has allowed us to propose a solution. This has been through a consultation process with contractors and clients.

The main component for the new proxy is Europe Brent Spot Price FOB (converted to sterling) with added allowances for shipping, additives and processing.

The indices affected are:

• 4/HM/R/17 Bitumen Emulsion for Surface Dressing – PAFI Highways Maintenance Series 4 and
• R10/15 Bitumen – PAFI Highway Term Maintenance 2010 Series.

The changes are included in the indices they affect from and including January 2020.