Fuel surcharges and emissions levies: gross versus net presentation

Fuel surcharges, bunker adjustment factors, and emerging carbon/emissions levies billed to customers are additional variable consideration for the carrier's own performance obligation and generally form part of gross revenue, but judgment is needed where the carrier is merely collecting a pass-through regulatory levy on behalf of a third party as an agent. As new decarbonisation levies emerge with evolving market practice, applying a stale blanket policy (all gross or all net) without re-assessing indicators risks materially misclassifying revenue.

For each type of surcharge or levy (fuel/bunker adjustment, port emissions levy, carbon tax pass-through), does the carrier bear the underlying cost risk before recovering it (a principal indicator), or does it merely collect and remit a fixed regulatory charge on behalf of an authority with no margin retained (an agent indicator)? Is the surcharge formula transparent and directly indexed to a published fuel or carbon price benchmark, or does the carrier retain discretion over the rate and therefore pricing risk? Is the estimate updated if the surcharge is finalized after the reporting date but before the financial statements are authorized for issue?

1) For each type of surcharge or levy (fuel/bunker adjustment, port emissions levy, carbon tax pass-through), assess whether the carrier bears the underlying cost risk before recovering it through the surcharge (a principal indicator) or merely collects and remits a fixed regulatory charge with no margin or discretion (an agent indicator). 2) Assess whether the levy is set and retained at the carrier's discretion (principal) or is a statutory/port-authority-set amount collected on a pure pass-through basis (agent). 3) Include surcharges concluded to be principal-type within the transaction price and recognize as gross revenue alongside the base freight charge. 4) Recognize pure pass-through regulatory levies on a net basis (excluded from revenue). 5) Reassess the conclusion whenever a new type of levy is introduced, since market practice and levy design continue to evolve (e.g. new IMO-linked carbon charges).

Estimate variable surcharge amounts using the applicable published index or contractual formula in effect at the time of shipment (e.g. a bunker adjustment factor tied to a published fuel price index), updating the estimate if the surcharge is finalized after the reporting date but before the financial statements are authorized for issue. For net-presented pass-through levies, measure at the exact amount collected and remitted, with no separate revenue measurement judgment required.

Disclose: (1) the policy for presenting fuel and emissions-related surcharges on a gross or net basis, and the basis for that conclusion (principal vs. agent indicators applied); (2) any changes in policy as new levy types are introduced, and the reason; (3) the amount of surcharge revenue included in gross freight revenue where material; (4) pass-through levies collected and remitted on behalf of authorities, if material, even though excluded from revenue.

• Presenting all levies net of surcharge income as a policy default without assessing principal versus agent indicators for each specific levy type
• failing to update judgment as new mandatory emissions levies are introduced that may have a different risk profile (e.g. carrier bears price risk) than legacy fuel surcharges (often pure pass-through)
• applying a gross/net conclusion reached for one levy type automatically to a newly introduced, structurally different levy without fresh analysis.