New Xeneta Shipping Index Joins Crowd Trying to Tie Contacts Rates to Current Market Dynamics

Ocean container rates are highly dynamic, frequently changing based on many factors, making even one year contracts problematic.

Shippers negotiating what they consider to be a fair rate for a long-term ocean freight contract can find that, three months later, they’re paying far in excess or below the actual market rates.

Supply Chain Digest Says... While shippers have generally been quite receptive to the idea of linking contracts to floating indices, the lines in general have been less enthusiastic about losing control over their ability to set rates. What do you say? Click here to send us your comments Click here to see reader feedback

That can put them at a competitive cost disadvantage – or cause carriers to put low price customers to the back of the service queue.

Of course, shippers can simply go with spot rates, but there are risks there too in terms of service, or prices that exceed recent contract rates.

This week, Norwegian container freight rate benchmarking platform Xeneta has launched a new rate index it says can transform the way ocean freight contracts work. The company says the service will transform the way shippers, freight forwarders and carriers conduct freight rate negotiations by getting a more true market-based price for their container shipping services and making time-consuming negotiations become efficient.

“After several years working closely with cargo buyers and sellers, the one thing that is a clear pain point for many organizations is the inefficiency and opacity of contract negotiations,” said Xeneta CEO Patrik Berglund in a statement.

The Xeneta Shipping Index (XSI) s a global ocean freight index with its foundations in Xeneta’s neutral database of over 65 million contracted rates, covering over 160,000 port-to-port pairings, which is crowd-sourced from more than 700 leading international businesses, including power shippers such as Electrolux, Nestle, Unilever, ThyssenKrupp, Tata Steel and Continental Tire.

The existing service provides a real-time overview of the latest ocean freight rates. The new index allows stakeholders in the negotiating chain to tie rates to what is actually happening the market relieving them from frequent or periodic contract negotiations.

“XSI allows independent, verified and up-to –the-minute rates to be tracked over major shipping routes covering 57 corridors representing 95% of global intercontinental volumes, such as Asia-Europe, Europe-Asia, trans-Pacific, trans-Atlantic,” Berglund added. “If all parties looking to sign a contract agree to use the index they can secure competitive rates over the long-term, building trust and reliable relationships with one another. What’s more they can save on all the resources, guess work and hassle associated with negotiating.”

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The idea, therefore, is that shippers could sign longer term contracts but then have actual prices paid adjust to current market conditions, presumably at some discount to current spot rates.

Other companies are pursuing similar tracks. Competitive platform Freightos launched a container freight index last year, while New York Shipping Exchange, launched in August of 2017, which has gained some traction with its digital freight forwarding contract for container shipping.

Of course, the Shanghai Containerised Freight Index and others have been around for many years as information sources on rate trends.

Xeneta says the service will take a lot of time and effort out of the current process of negotiating contracts with carriers, as rates static for long periods largely go away, replaced with rates tied to the index. The approach can then also eliminate the need to tender freight in the spot market.

Xeneta says it has several customers already running on the XSI, including luxury furniture maker Ekornes which is using the XSI in partnership with logistics firm DB Schenker. Under the deal, a monthly rate is created based on the latest freight data and an invoice generated on the last day of the month - dynamic contract pricing.

While shippers have generally been quite receptive to the idea of linking contracts to floating indices, the lines in general have been less enthusiastic about losing control over their ability to set rates.

But as with almost everything in logistics, new process models in the digital age are rapidly emerging in ocean freight.

What do you think of this idea of tying container rates to an index? Let us know your thoughts at the Feedback section below.

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