Today, the go-to metric for that question is typically Standard & Poor’s 500, the Nikkei, or the Dow Jones Industrial Average (a shockingly poor indicator, if you look closer). Having one indicator is critical for visibility and for driving actionable decisions. Instead of looking at each of the top 500 NYSE and Nasdaq Composite companies every fifteen seconds, financial professionals get insights at a glance.
The S&P 500 works because it taps into real, live data, with a representative sample selected by a committee of analysts along with the right methodology. Beyond functioning as a leading indicator, it’s emerged as one of the most common investment instruments.
The underlying premise dates back further, even for freight. In 1744, the Virginia and Baltick [sic] coffee shop in London was the go-to place for traders to discuss maritime pricing. In 1823, this was formalized into a committee to regulate the exchange of securities. By 1985, the Baltic Exchange published its first daily dry bulk freight index.
The Age of the Index
Dataset proliferation, the ability to run complex calculations on the fly, and an increasingly data-driven orientation created a fertile ground for indexes, extending beyond finance, pork bellies, and freight. For example, the Mei Moses Art Indices is an index for fine art, Rapaport has offered a private diamond index since 1978 and the number of real estate indexes has taken off. Nearly every industry has created on-demand metrics to gauge market performance, hedge risks, and make decisions accordingly.
The driver? Reliance on technology is progressing customer empowerment at the speed of light. And with that comes changed expectations.
Customers have unprecedented information at their fingertips. Google describes a typical customer journey of buying a car to have 1,000 digital touchpoints. The freight industry has been evolving, albeit slowly, in this direction and here at Freightos, we’ve been happy to play a role.
However, the industry remains incredibly opaque.
This chart, taken from the free Freightos Rate Insight tool, represents a snapshot, taken this week, of the price ranges across different carriers for a 40’ container that will be shipped along the same route – from Shanghai to Los Angeles. Sure, most of the rates converge in the $900-1,300 range, but that still represents a huge price differential when multiplied across millions of containers. Shippers deserve access to this information, as Jochen Thewes, the CEO of DB Schenker, spelled out at TPM 2018:
“Let’s face it, the freight forwarding industry basically exists because of the complexities in the supply chain, because there are so many players, and because of a lack of transparency, and that is how we have made our money in the past. Now we need to find a way to make money with, and through, transparency.”Jochen Thewes, CEO, DB Schenker
A New Freight Index
A definitive international container freight index is one way to provide transparency. But it’s a challenge, as an accurate, actionable freight index, requires three components:
- Data accuracy and timeliness, with full data objectivity
- Breadth of data across geographies
- Ability to transform the data into indicators that are actually helpful.
Freightos’ technology powers international freight sales and freight quote management for over one thousand logistics providers, as well as thousands of importers and exporters. This has created a living and breathing database of over one billion data points across modes, carriers, and forwarders. This drove Freightos’ launch of the Freightos Baltic Index, the world’s best freight container index in 2017.
Today, I’m happy to announce that together with the Baltic Exchange, a Singapore Exchange subsidiary, we’re taking the index to the next level.
We’ve chosen the Baltic Exchange as a strategic partner for our index, updated our core methodology, and are now launching the Freightos Baltic Index (FBX).
The FBX is a headline index that tracks global container prices with one key indicator, backed by a suite of 12 regional indexes, all rebranded under the Freightos Baltic Index. This is truly exceptional; it will be the very first-time container shipping will have the instruments and transparency that so far have only been available for financial services.
On the technical side, the new methodology leverages the hundreds of years of experience introduced by the Baltic Exchange. The indexes will be available from the Freightos freight index hub, the Baltic Exchange website, and on Reuters and Bloomberg terminals. These indexes are audited and will be completely compliant with new regulations, like IOSCO and ESMA. Finally, we are pursuing plans to launch financial instruments together with the Baltic Exchange’s owners, the Singapore Exchange, in order to help shippers, carriers, and forwarders control for volatility by transforming the visibility for action.
And we’re still just getting started.
Our vision with the Freightos procurement platform has always been to empower shippers, and enabling service providers to engage with customers in a digitally-powered, transparent manner. Today, we’re happy to provide more visibility than ever to shippers. The next step is to translate that into more control for shippers and logistics providers, leveraging our data and shared expertise to make global freight even better.