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Confusion with ocean freight indices limits their utility

AN increase of ocean freight indices is causing more confusion than clarity for capacity buyers, reports IHS Media.

Many shippers don't understand what data goes into the public spot rate indices on the market or how the data translates to the actual readings.

Supply chain snarls and historically high ocean transportation costs during the Covid crisis have brought indices into the market like never before.

That means tools that have been used by logistics procurement teams are now being scrutinised by executives.

Shippers feel that each of the five major rate indices offers a slightly different view of the market.

The Shanghai Containerised Freight Index (SCFI), for example, is based on spot rates provided by non-vessel-operating common carriers (NVOCs) at origin in Asia.

Drewry's World Container Index (WCI) and the Xeneta Shipping Index (XSI) are based on contract and spot rate data provided by shippers or forwarders as part of a benchmarking product.

The data that goes into the Freightos Baltic Index (FBX) is taken from transactions made on the Freightos ocean freight booking marketplace.

Although the producers of these rate indices publish their methodology, the actual calculations behind it remain a secret.

The idea that indices can tell a shipper whether prices are rising or falling has been common in conversations with logistics managers responsible for ocean freight procurement.

"From a macro perspective, indexes are helpful to identify directional trends in the market," said a shipper.

"Spot market rates falling equals a softening in the market."

The shipper declared she primarily uses data from Drewry and Freightos, mainly to gauge the direction of the market and partly as a benchmark of how her company's ocean rates are performing relative to the market.

"This is essentially a 'pay no attention to that man behind the curtain' moment for me," said the shipper.

"I have researched the source organisations and have confidence in the methodology. While I think the actual data collection and analysis and reporting details would be neat to know, it is not a deal breaker."

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Confusion with ocean freight indices limits their utility
Confusion with ocean freight indices limits their utility


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