Is indexing only useful for high-value cargo? In reality, index-linked freight contracts (or “indexing”) are not limited by cargo value. As Rajesh Bhol, Principal Product Manager – Indexing at Xeneta, explained in a recent customer webinar:
“...with what I have seen, I think it's not relevant whether it's higher value or lower value because the market is the market. How you position yourself in the market is what determines your service requirement, especially the quality of supplier you want to engage with. An index ensures that you are in sync with the market. Where you want to place yourself in the market, it's still a choice, it's still a negotiation for you to determine, and that can vary by commodity, but indexing itself it's applicable to all.”
Patrik Berglund, CEO and Co-Founder of Xeneta, added:
“[Xeneta] recently helped a large Asian-based shipper, a trading company with low margin commodities, index link their contracts, so it ends up being a conversation about what is the relevant market position for them. They are shipping a low margin, low value product so the market position they achieve is instrumental as to whether they will be able to ship even, so it's completely possible. On higher value, higher margin commodities, you kind of have more leeway to manoeuvre in the market”
As highlighted, indexing ties your rates to a market index, ensuring fair, up-to-date prices. Whether your cargo is high or low value, the core benefit remains the same: agility. Index-linked contracts are a flexible approach that ensures your cargo moves in all markets and helps you remove ad-hoc renegotiations of your tenders – which in turn reduces resource and time requirement for running tender. This makes them incredibly useful if your strategy is to avoid the pitfalls of fixed rates in a constantly shifting market.
Staying in Sync with Market Rates
The beauty of indexing is that it keeps your contract rates aligned with real market movements. When the market spikes or dips, an index-linked contract adjusts automatically – no need for constant tense renegotiations. Experts stress that index-linked contracts offer greater trust between shippers and LSPs, while removing the need for endless re-bidding every time the market turns.
During the same webinar referenced above, we polled freight professionals about their current use of index-linked freight contracts, and the results highlight how this strategy is already making an impact:
Benefits for Every Shipper
No matter the size of your business or volume levels, the benefits of index-based pricing are clear: fewer tenders, no need for renegotiations in volatile markets, market-aligned rates which results in no container rollovers, and standardized surcharges across suppliers.
Indexing also scales to fit your needs. Large shippers use index-based pricing to align all stakeholders around a single market reality, ensuring transparency and consensus in procurement decisions.
Smaller shippers can also leverage indexing to negotiate smarter, protecting against market volatility. 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 unfavorable fixed prices. This creates a more level playing field, offering predictability and better negotiation power for all.
Barriers to Wider Adoption
When asked about barriers to wider adoption, many professionals pointed to internal challenges. Here are the top reasons freight professionals say they're hesitant to adopt index-linked contracts:
These insights reflect common hurdles that shippers face when considering indexing, but they also highlight the growing interest and potential for wider use as organizations begin to overcome these barriers.
Next Steps:
If you’re a Xeneta customer, you’re invited to jump into the platform and explore the new Index Simulator. This tool lets you compare lets you create index-linked contracts and compare them with your historical rates to build models that help you achieve or improve your historical market position. As Bhol puts it:
“Go ahead, explore, create your possibilities, if nothing else, you can start monitoring how your index contract would look like from today for the next 6 months, before you get into [your next] tender. You will have real rules set up and can continuously monitor how it’s performing and create those business cases”
For those new to this approach, and not yet a customer, check out Xeneta’s Indexing Guide for a comprehensive overview of how index-linked contracts work, best practices for implementation, and tips on choosing the right index.
Explore the Indexing Guide today.
