Index Linking: The Future of Stable, Market-Aligned Contracts

Rate volatility, contract failures, and endless renegotiations have long plagued the freight industry. Traditional fixed-rate contracts often collapse when market conditions shift, leading to rolled cargo, sudden surcharges, and costly disputes between shippers, forwarders, and carriers.

But what if there was a way to align freight rates with real-time market conditions, eliminating unnecessary negotiations while ensuring fair, predictable pricing for both sides? Enter Index Linking is a rapidly growing solution that transforms freight procurement by tying shipping rates to trusted market indices like the Freightos Baltic Index (FBX).

This guide will provide an overview of index linking, covering:

• What is index linking, and how does it work
• Why traditional contracts fail in volatile markets
• The benefits of index-linked freight contracts
• Practical implementation steps for shippers and forwarders
• How Freightos Terminal makes index linking seamless

What is Index Linking in Freight?

The Problem with Fixed-Rate Contracts

Traditional freight contracts operate on fixed annual rates. A shipper negotiates a price with a carrier or forwarder, expecting stable rates for a full year. However, the reality is far from stable:

• When market rates rise, carriers prioritize high-paying spot shipments over contracted cargo, leading to rolled bookings or sudden rate increases.
• When market rates fall, shippers abandon fixed-rate contracts and shift to the cheaper spot market—forcing carriers to renegotiate or risk losing volume.
• Both scenarios lead to frequent contract breakdowns, strained relationships, and wasted time on endless renegotiations.

How Index Linking Works

Index linking replaces static contracts with dynamic pricing tied to real-time freight indices. Instead of setting a fixed rate for the year, shippers and carriers agree on a formula like:

Contract Rate = (Freight Index) ± (Negotiated Adjustment Factor)

For example, instead of saying:
“We will pay $4,000 per container on this lane for 12 months,”

An index-linked contract would say:
“We will pay 97% of FBX01 + $50 per container, adjusted annually.”

This means that as market rates go up or down, the contract price adjusts accordingly—ensuring competitive pricing without constant renegotiation.

Key Components of an Index-Linked Contract

Index-linked contracts create a more predictable, transparent, and efficient freight procurement process—reducing financial risk while securing competitive pricing.

1. Benchmark Index: Typically based on the Freightos Baltic Index (FBX) or another reliable freight rate index.
2. Adjustment Factor: A negotiated percentage above or below the index rate (e.g., FBX – 3%, FBX + $100).
3. Update Frequency: Pricing can be updated monthly or quarterly based on the latest index value.
4. Rate Boundaries: Optional ceilings and floors to prevent extreme fluctuations.
5. Contract Term: Typically 12-24 months, allowing for long-term planning while maintaining flexibility.

Why Traditional Freight Contracts Are Failing

“Index-linking transforms contracts from ‘letters of intent’ into resilient agreements. It’s time for containerized freight to catch up with bulk shipping.”

— Bjorn Vang Jensen, EVP Ocean at Easy Speed International Logistics

1. Volatility is Increasing

Freight markets have become more unpredictable than ever, with extreme price swings driven by:

• Pandemic disruptions (2020-2021): Spot rates soared over 500%, breaking most contract agreements.
• 2022-2023 rate crash: As demand slowed, rates plummeted, forcing shippers to renegotiate contracts downward.
• Red Sea crisis (2024): Geopolitical tensions led to sudden route diversions and price hikes of up to 300% on key Asia-Europe lanes.

2. Carriers & Shippers No Longer Trust Fixed Contracts

A recent Freightos survey found that:

• 80% of BCOs renegotiated their long-term ocean contracts in 2023 due to falling market rates.
• 35% of contracted containers were rolled during peak volatility in 2021.
• 77% of shippers and forwarders modified their procurement strategy after experiencing contract failures.

In short, neither side trusts that a fixed contract will hold when market conditions shift dramatically.

3. The Annual RFQ Cycle is Expensive and Inefficient

For large shippers and forwarders, negotiating annual ocean freight RFQs is a costly process:

• It takes 3-6 months of back-and-forth negotiations each year.
• Procurement teams spend thousands of hours in meetings, only to see contracts break within months when rates change.
• Freight procurement has become increasingly time-consuming, pulling resources away from strategic supply chain management.

The Benefits of Index Linking

1. Protect Against Market Volatility

Index-linked contracts automatically adjust to market conditions, ensuring that:

• Shippers don’t overpay when rates drop, keeping transportation costs competitive.
• Carriers don’t lose revenue when rates rise, preventing abandoned contracts.
• Both parties avoid constant renegotiations and contract failures, ensuring long-term stability.

2. Reduce Administrative Burden & RFQ Costs

Instead of renegotiating contracts every quarter, index-linked agreements allow for:

• Long-term pricing stability, with automatic rate updates aligned to market trends.
• Reduced procurement workload, enabling teams to focus on strategic operations rather than firefighting contract disputes.
• Fewer RFQs and shorter negotiation cycles, saving time and resources.

3. Improve Carrier-Shipper Relationships

By aligning incentives through fair pricing mechanisms, index-linked contracts foster:

• Win-win partnerships that last beyond short-term market swings.
• More predictable freight commitments, helping shippers secure space while ensuring carriers maintain profitability.
• Less contract friction, reducing disputes over rate fluctuations.

4. Increase Budget Predictability for Finance Teams

Freight costs become more transparent and manageable with index-linked pricing:

• Shippers gain better forecasting accuracy with structured pricing models rather than unpredictable rate swings.
• Carriers can better plan capacity allocation without worrying about losing volume when spot rates drop.

5. Enable Smarter Hedging Strategies

For companies looking for additional stability, index-linked contracts can be paired with:

• Freight derivatives & Forward Freight Agreements (FFAs) on platforms like the Chicago Mercantile Exchange (CME) & Singapore Exchange (SGX).
• Risk management strategies allow companies to lock in future rates while benefiting from dynamic pricing mechanisms.

Index linking not only stabilizes freight pricing but also enhances operational efficiency, financial planning, and long-term carrier relationships.

How to Implement Index Linking in Your Freight Procurement Strategy

“We’re setting out to make this as accessible as possible with trusted indexes, sample legal clauses, index pricing toolkit and more.”

— Anton Barr, VP Market Data at Freightos

Step 1: Select the Right Benchmark Index

The most widely used container shipping indices include:

• Freightos Baltic Index (FBX) – IOSCO-compliant and based on real transactional data from forwarders and carriers across 12 major lanes.
• Drewry World Container Index (WCI) – Covers multiple global trade routes with weekly updates.

The Freightos Air Index (FAX) provides similar real-time rate tracking capabilities for air cargo.

Step 2: Define Your Pricing Formula & Boundaries

Work with your carrier or forwarder to agree on:

• The adjustment factor (e.g., FBX – 5%)
• Update frequency (monthly vs. quarterly)
• Rate ceilings/floors to prevent extreme swings

Step 3: Use Digital Tools for Easy Tracking & Automation

Platforms like Freightos Terminal streamline index-linking by providing:

• Automated contract tracking tools for floors/ceilings/boundaries
• Real-time FBX/FAX data for accurate rate adjustments
• Ready-made contract templates & negotiation toolkits

Step 4: Monitor & Optimize Performance Over Time

Once implemented, track performance regularly using Freightos Terminal’s analytics tools:

• Compare contract vs. spot market performance over time
• Adjust formulas if needed based on historical trends
• Expand index-linking to more trade lanes as confidence grows

Why Freightos Terminal is the Best Platform for Index Linking

• Comprehensive Data Access: Get real-time FBX & FAX rate updates across all major trade lanes.
• Automated Contract Tracking: Monitor index-linked contract performance effortlessly within Freightos Terminal’s dashboard.
• Proven Contract Templates: Leverage ready-to-use legal frameworks to accelerate negotiations with carriers & forwarders.
• Expert Guidance & Support: Work with Freightos specialists to ensure successful implementation across your network.

The Future of Freight Contracting is Here

With global supply chains facing continued uncertainty, businesses that adopt dynamic pricing models will gain a competitive edge by securing stable, predictable freight costs while avoiding unnecessary disputes. Index linking is fast becoming the future of resilient freight procurement.

Ready to take control of your freight procurement? Get started with Index Linking on Freightos Terminal today!