There’s no shortage of indexes telling you how much it costs to ship a container load from A to B. Unfortunately, each one gives you a different answer.
The disparity between the different indexes grew even more extreme on Wednesday, after a calculation change by the Freightos Baltic Daily Index (FBX) led to a massive one-time reset in its Asia-U.S. spot-rate assessments.
Wide range of assessments
Container index numbers have been all over the map this year, a fact not lost on index critics.
The latest assessment for Asia-West Coast rates from the Shanghai Container Freight Index (SCFI), a weekly estimate as of last week, was $5,388 per forty-foot equivalent unit. Wednesday’s daily assessment from S&P Global Platts was $7,400 per FEU. Xeneta’s was $8,697. The weekly assessment from Drewry (for the current week, released Thursday) was $10,503.
And the FBX Asia-West Coast daily rate for Wednesday: a whopping $18,346 — more than triple SCFI’s and more than double S&P Global Platts’ and Xeneta’s.
The same vast range is seen for Asia-East Coast assessments. S&P Global Platts is at $8,600 per FEU, Xeneta $9,732, SCFI $9,850, Drewry $13,434 and FBX $19,620.
Ask shippers booking spot cargo at the last minute which assessment is closest to reality and many would vote for the highest number.
For cargo to get loaded, carriers are now tacking on thousands of dollars of premium/no-roll fees beyond the base Freight All Kinds (FAK) rate. These exceptional charges are traditionally not included in index assessments. Freightos said that following changes effective Wednesday, FBX’s Asia-U.S. indexes do incorporate these extra fees.
What just happened at Freightos?
FBX’s Asia-West Coast assessment skyrocketed 176% in a single day on Wednesday, and the Asia-East Coast rates jumped by 85% — not because of the market, but because of how the indexes were calculated.
Freightos is the calculating agent for the FBX, while the U.K.-based Baltic Exchange is the administrator. The Baltic Exchange said it received “feedback that the FBX01 [Asia-West Coast] and FBX03 [Asia-East Coast] did not accurately reflect the market” and “a detailed investigation was conducted.”
The Baltic Exchange said, “The investigation identified data sources as an outlier in the input data, which accounted for the data skew.”
Dafna Farkas, corporate marketing associate at Freightos, told American Shipper, “Additional surcharges have been playing a huge role in pricing.” Although “they are not considered part of traditional rates, they are a very real component of current prices, [so] they need to be taken into account to accurately reflect the market.
“The outliers the Baltic Exchange instructed us to exclude were those that flagrantly were not accounting for the surcharges,” said Farkas.
Freightos Research Lead Judah Levine said the removal of outliers means that the FBX Asia-U.S. indexes “now comprehensively account for the premium surcharges required for bookings.”
The effect of premium charges
Xeneta’s assessments are much lower than Freightos’ — and yet Xeneta also claims to account for the premium surcharges.
Katherine Barrios, chief marketing officer of Xeneta, told American Shipper, “Although we do hear in the mainstream media and other indices of crazy-high rates from $20,000-plus, this is not what our customers — mainly big-volume global shippers — are experiencing. Rates are high — record high — but our typical large-volume shipper is not yet getting the $20,000 quotes. Not in our customer base, at least.”
Barrios said that Xeneta’s daily assessments for the Asia-U.S. routes are based on almost a thousand data points per day and include premium charges that guarantee space and equipment; Xeneta estimates that these are around $2,500 per FEU.
S&P Global Platts indexes do not include these premium charges. In an interview earlier this month, American Shipper asked George Griffiths, editor of global container freight at S&P Global Platts, whether spot-rate assessments excluding premium charges reflect reality.
Griffiths replied, “The premiums are obviously a very new addition to this market and there are questions about how long they will stay. When COVID lockdowns end, will we still see premiums?
“There is also the question of: Are you paying a premium because you want to ship your cargo in three days? If you’re waiting a few weeks, you’re starting to see the spot rate [without a premium] and if you don’t care when your cargo moves, you’ll pay even less. So, I do think the spot rate is capturing the balance between the different sides,” said Griffiths.
Different data sources
Beyond the premium-versus-no-premium issue, indexes diverge because they’re getting rate quotes from different sources and they’re using different methodologies.
Xeneta CEO Patrik Berglund said during a presentation in February that his company’s long-term rate assessments are derived from shippers, its short-term (spot) rate assessments from freight forwarders, “with no data coming from carriers, because in principle they have a theoretical appetite to report a very high price — not that they would necessarily do that.”
In contrast, Griffiths of S&P Global Platts said, “We speak to everyone across the entire board: carriers, shippers, freight forwarders, logistics providers, everyone. We try to make sure the picture is the most holistic one we can possibly get our hands on, otherwise you’re merely becoming a mouthpiece for one side of the market or the other.”
Freightos’ FBX indexes are calculated using spot rates offered by ocean carriers to freight forwarders or by non-vessel-owning common carriers using Freightos’ digital applications.
The SCFI derives its rate estimates by polling panelists who include carriers, forwarders and shippers. The Drewry index is based on rates paid by freight forwarders to carriers.
Why indexes matter
According to Griffiths, “There is significant value in these spot-rate assessments as you see which side is winning out, be that supply or be that demand. All of the methodologies [between the various index providers] are nuanced and take into account different variables, but as a general rule, it’s odd to see one go up and the others not follow suit. And it’s the general trends that I think people are looking at.”
There are also two applications where market participants have a much more granular interest in index rates: freight derivatives and index-linked contracts.
Container-shipping forward freight agreements (FFAs) remain scarce compared to bulk commodity FFAs, but they do exist. Earlier this year, London-based FIS announced the completion of container FFAs based on the FBX.
Meanwhile, the use of indexes in long-term contracts is poised to accelerate. Maersk’s long-term contract coverage is up 20% in 2021 versus 2020, to around 6 million FEUs. Of that, 1 million FEUs are multiyear contracts that extend up to three years.
Maersk CEO Soren Skou revealed that some of the multiyear contracts are fixed-rate, while others are fixed-rate for the first year and index-linked in the second and/or third years.
This guarantees that container indexes will become much more important starting in 2022, when Maersk’s variable-rate terms kick in. And that means a lot more money will be riding on whether an index accurately reflects reality, or not.