News / Return on investment in index-linked contracts still not enough, say SMEs

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The cost-benefit ratio of index-linked contracts is still not enough for SME shippers and forwarders, though market volatility offers a convincing case.  

According to freight benchmarking platform Xeneta, indexing allows smaller shippers “to negotiate smarter, protecting against market volatility”. 

It explained: “By using a neutral index as a benchmark, even modest-sized shippers can secure fair rates, adjust to market swings, and avoid being locked into unfavourable fixed prices. This creates a more level playing field, offering predictability and better negotiation power for all.” 

Large shippers, Xeneta added, could use index-based pricing to “align all stakeholders around a single market reality, ensuring transparency and consensus in procurement decisions”. 

However, one SME forwarder told The Loadstar that, while indexing could be a good tool to set negotiating prices, “the fees [indexing data platforms charge] for access make it cost-prohibitive for smaller players”. 

The source added: “It’s like $20.000-40,000 a year. So, if you’re a small player, then it doesn’t work because it doesn’t give you a return on the investment.” 

Indeed, 24% of respondents to Xeneta’s customer poll, surveying the perceived hurdles of adopting the index-based contracting method, said they had “difficulty quantifying the benefits”.   

The largest reason for their doubts, however, was “lack of internal expertise and stakeholder resistance”, at 54%. 

“These insights reflect common hurdles shippers face when considering indexing, but they also highlight the growing interest and potential for wider use as organisations begin to overcome these barriers,” said Xeneta.  

It maintained that the benefits of index-based pricing were clear, “regardless of business size or volume level”, explaining: “Fewer tenders; no need for renegotiations in volatile markets; market-aligned rates, which results in no container rollovers; and standardised surcharges across suppliers.”

Matthew Gore, partner at law firm HFW, told The Loadstar: “The development of these platforms and the increased availability of reliable and regularly published datasets and indices has greatly improved visibility in the market.” 

But he added: “I’m still not sure whether the market is ready yet for large-scale adoption of container freight derivatives though. 

“About 15 years ago I remember Clarksons, Morgan Stanley, the Baltic Exchange and others looking at this area, and there was even a Container Freight Derivatives Association, although it was too far ahead of its time then.” 

Mr Gore explained that there had been more noise around indexing in recent years “largely because there has been increased volatility in the market”, but also because “there’s the desire to get more parties to buy-in to get the data from those platforms”.