News / Jury still out on benefits of index-linked contracts for shippers

Photo: © Wave Break Media

Freight index platforms are keen to push index-linked agreements (ILAs), but there are questions about whether a volatile market attracts or deters shippers and carriers from changing their contract style.  

Today, Patrik Berglund, CEO of freight rate intelligence platform Xeneta, predicted: “2025 will be the year we bring clarity to this industry as to how indexing should be done.” 

Index-linked contracts track freight rates and offer periodic price adjustments to the agreed rate, and have been hailed as a way to ensure both shippers and carriers get a fair deal when large divergences occur between spot and contract rates.   

Freight indexing platform Freightos has also been peddling a conversation around the ‘meet-in-the-middle’ contract style since the launch of its Index Linking Toolkit in mid-February.   

Its CEO, Zvi Schreiber, posted on LinkedIn: “Why are container shipping contracts still stuck with fixed rates that nobody believes in? Especially when we have trusted indices like the FBX [Freightos Baltic Index], there’s no excuse for endless renegotiations and broken contracts.” 

At last week’s TPM25 by S&P Global, Chantal McRoberts, Drewry’s director of supply chain advisory, acknowledged: “I’m not going to deny it; we’ve got skin in the game. We have the World Container Index (WCI) and the Container Freight Rate Insight. So we have insights into how the index is working, and maybe some of the best practices that shippers may want to consider if they want to adopt it.” 

One of the reasons for the newfound hype around ILAs  has been the increasingly volatile spot market in the wake of Covid, congestion, and geopolitical related surcharges – to name a few of the things that have resulted in long-term contracts becoming more of a loose suggestion than legally binding, if the carrier or shipper feel short-changed.  

Anton Barr, VP market data at Freightos, said: “In this volatile environment, index linking is becoming more essential than ever. We’re setting out to make this as accessible as possible with trusted indices, sample legal clauses, index pricing toolkit, and more.” 

However, conversations during the Long Beach TPM event indicated that volatility may be a case against ILAs for shippers, rather than a catalyst.  

“2025 is still a year where there’s lots of known unknowns. In theory, that’s just making ILAs attractive, because it de-risks it,” said Ms McRoberts. 

“But you have to be an innovator, you have to be the guinea pig, and I don’t think shippers are feeling confident enough to do that right now. Back in 2015, we saw some adoption, but I think these days, shippers really want to control their pricing across all their lanes,” she added. 

“Confidence wavers a bit, and I think some shippers still feel more comfortable with a more traditional approach… they get to the point of ‘okay, we can do this’, and then suddenly there’s a setback and it’s ‘no, I’ll go with the traditional contract cycle because I don’t want to take the risk’.” 

The index platforms can clearly see an upside to ILAs, but the jury is still out on whether the benefits of rate adjustment extend to contracting parties.