Not all freight indices are created equal
Uncertainty still surrounds the sea freight market this year with many shippers opting for index-linked contracts to avoid locking in fixed rates while markets remain volatile. When selecting an index for their freight rate adjustment mechanism, shippers should be aware of the differences between the various indices available.
In this briefing we highlight some of the key factors and considerations when selecting an index. The primary objective of adopting index-linked contracts is to minimise the need for renegotiation during the contractual term, as rates automatically adjust in line with the market. However, to maximise the benefits, it is crucial that the correct index is chosen to ensure alignment with the market and avoid overpayment.
Container size
Selecting an appropriate index requires recognition of the container size typically shipped. This is because indices do not track container sizes uniformly and shippers should recognise that TEU (Twenty‑foot Equivalent Unit) and FEU (Forty‑foot Equivalent Unit) data are not interchangeable. In practice, shippers using 20ft containers should rely on indices that track TEU‑based rates, while those predominantly moving 40ft containers should adopt indices aligned with FEU pricing to avoid distortions.
For example, the Drewry World Container Index (WCI) publishes the average weekly USD port‑to‑port rate for 40ft containers, making it an FEU‑aligned benchmark suitable for shippers moving 40ft units. In contrast, the Shanghai Containerised Freight Index (SCFI) and China Containerised Freight Index (CCFI) track routes that include both 20ft and 40ft container rates depending on the trade lane, offering broader coverage but requiring closer monitoring to ensure alignment with actual container usage.
Ultimately, ensuring the pricing mechanism mirrors the shipper’s container size is a simple, yet essential, consideration.
Regional coverage and scope
Choosing the right index also requires a clear understanding of its geographical scope, as most indices do not monitor the entire global market. Instead, they typically focus on certain trade lanes, meaning the relevance and accuracy of any index‑linked pricing will depend on how well the index reflects the shipper’s trade lanes.
The SCFI exclusively tracks weekly spot rates for exports out of Shanghai, covering 15 major shipping routes. By contrast, the CCFI uses data from all major Chinese ports, offering broader national coverage and combining both spot and contract rates.
For businesses operating across more diversified geographies, global composite indices may be more suitable. The Freightos Baltic Index (FBX) publishes daily assessments of rates across twelve global lanes, while the CCFI monitors weekly spot rates from ten major ports in China across trade lanes covering markets in Europe, North America, South America and the Middle East, providing a broader international coverage.
When determining which index to adopt, shippers should compare the trade lane coverage of each benchmark against the specific corridors they use, ensuring the chosen index reflects their actual movements, as closely as possible.
Data Source and frequency of updates
Parties should consider how frequently the underlying data is updated, as this affects the responsiveness and reliability of index‑linked pricing. Many widely used indices, such as the SCFI and CCFI, are updated weekly, reflecting spot and contract pricing trends across Chinese export markets. The WCI is also updated weekly whilst some are only published monthly. In contrast, platforms such as Xeneta and NYSHEX offer continuous, real‑time updates for subscribers, drawing on actual shipment rates.
Higher‑frequency updates can offer shippers a more immediate view of the market and greater agility, as they are not subject to the reporting lag associated with some others. However, indices that update more frequently may rely more heavily on quoted rates, which can differ from final transacted or invoiced rates. Before selecting an index, it is essential for shippers to review the published methodology and assess how transparent the index is and whether it is based on quoted, booked and actually shipped / invoiced rates, or whether a blended or weighted calculation is used. Shippers should also confirm the weighting applied to each rate type.
Contractual compatibility
It is prudent to ensure the chosen index aligns with the contract’s rate adjustment mechanism, including how rate movements are calculated, applied, and communicated between the parties.
Shippers should verify whether the index incorporates fuel surcharges, currency adjustments, or other ancillary cost elements, as these can materially affect how rate changes flow through the contract. For example, the SCFI explicitly includes BAF, FAF, and other seaborne surcharges as part of its cumulative rate calculations. As not all indices account for these components in the same way, mismatches can create ambiguity or worse, unintended exposure if the index does not reflect the cost structure contemplated by the parties.
Ensuring that the index is compatible with the contract’s pricing methodology, scope of services, and associated freight rate composition may require specialist commercial or legal support, particularly where multiple indices are being considered or where bespoke adjustment formulas are being developed.
Cost and accessibility
The scope of the data and the cost of accessing it should be considered when selecting an index. Some indices such as the WCI, provide subscription‑based access to detailed global spot‑rate intelligence, and platforms like NYSHEX, offer real‑time long‑term contract benchmarking require paid subscriptions for their granular datasets. By contrast, indices such as the SCFI and CCFI are generally publicly accessible at a high level, offering essential weekly rate movements without the need for a subscription. Shippers must therefore factor subscription costs into their overall assessment of which index best aligns with their needs.
The market has also seen the emergence of new analytical tools and modelling platforms that allow shippers to simulate market volatility, incorporate their own shipping data, and assess potential outcomes under both index‑linked and fixed‑rate structures enabling more sophisticated scenario planning and comparison. These tools can enhance transparency and accuracy but often come at an additional cost. Ultimately, parties must balance the benefits of enriched datasets and platform functionality against the financial and administrative implications of accessing these.
Duration
Given the level of time and resource investment involved in negotiating these agreements particularly where bespoke pricing mechanisms, floors and ceilings, or service‑level frameworks are developed, it is often commercially sensible to adopt a longer duration. A multi‑year or evergreen term enables parties to fully realise the advantages of an index‑linked contract, reducing the frequency of renegotiations and encouraging a more stable relationship between parties over time.
Key takeaways
In an environment where market volatility continues to shape freight procurement strategies, the purpose of this briefing is not to prescribe a single index but to highlight the breadth of options available. Businesses should consider factors such as regional coverage, update frequency, source of data (i.e. spot, contract or a mixture) as well as the composition of the rates it reflects (i.e. quoted, booked or a combination). Understanding how timing, delays, and market movements influence index responsiveness is equally important for informed decision‑making.
Given the potential for misalignment, lags and the significant financial exposure that can follow, shippers often benefit from seeking specialist commercial or legal guidance to structure index‑linked contracts that accurately reflect their operations and avoid unintended overpayment. By understanding the spread of available indices and their implications, shippers are better positioned to adopt an approach closely follows market fluctuations and supports their commercial relationships over time.
Alexandra McCulloch, Trainee Solicitor, assisted in the preparation of this briefing.
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