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Freightos Introduces Index Linking for Freight Contracts

Freightos®, recognized as the top digital freight booking and payment platform worldwide, is taking a significant step in transforming global trade by launching its Freightos Index Linking Toolkit. This innovative solution is part of the Freightos Terminal market intelligence offering, enabling real-time adjustments to freight contract pricing based on current market conditions. The goal is to create a more resilient and efficient system for managing freight rates.

Introduction to Index Linking

Index linking is a method proving its worth in industries like bulk shipping, and it is now making waves in the world of containerized shipping and air cargo. This toolkit is set to reshape the way importers, exporters, freight forwarders, and carriers approach their contracts, allowing them to maintain stable and reliable agreements while minimizing time-consuming meetings and negotiations.

According to Freightos research, traditional fixed-price contracts often lead to complications. Carriers frequently seek to renegotiate rates when prices rise, while importers and exporters may push for adjustments when prices decrease. The new index-linking toolkit from Freightos provides a dynamic pricing strategy that aligns rates automatically with market trends. This drastically cuts down on the need for frequent renegotiations, ensuring competitive pricing consistently.

How It Works

The index-linking mechanism presented by Freightos relies on two primary benchmarks, namely the Freightos Baltic Index (FBX®) and the Freightos Air Index (FAX). The FBX is a globally recognized container index that complies with regulatory standards, pulling from a vast reservoir of transactional data. The FAX operates similarly for the air cargo sector, offering users insights based on real-time aggregate pricing data for quoting and booking purposes.

Freightos has also mentioned the advantages of pairing index linking with freight futures agreements (FFAs) on trading platforms like the Chicago Mercantile Exchange (CME) and the Singapore Exchange (SGX). This strategy helps carriers, forwarders, and beneficial cargo owners (BCOs) shield themselves from price fluctuations. Bjorn Vang Jensen, EVP Ocean at Easy Speed International Logistics, emphasized the benefits of having a stable rate contract, noting that it creates a nearly perfect hedge against market volatility.

The Need for Change

The logistics sector worldwide is feeling immense pressure due to unpredictable market conditions. Teams that were once able to negotiate freight contracts annually are now forced to do so quarterly or even more frequently. This shift is a direct response to ongoing disruptions within the global supply chain, making adaptive practices not just advantageous, but essential. Anton Barr, VP Market Data at Freightos, believes making index linking accessible is critical for the industry's evolution.

Benefits of Index Linking

By transitioning to index-linked contracts, companies can experience several advantages, including:
1. Reduced Contract Renegotiations: With prices automatically adjusting according to the market, constant renegotiation becomes a thing of the past, saving valuable time and resources.
2. Enhanced Price Stability: The dynamic nature of index-linked contracts ensures that both sides get favorable pricing while minimizing the risk of unpredictable costs arising from market fluctuations.
3. Operational Efficiency: Logistics teams can redirect their energies toward other productive tasks instead of being entangled in prolonged negotiation processes.

In conclusion, by adopting index linking, Freightos is not just modernizing how freight contracts are structured, but also contributing significantly to improving the efficiently interwoven fabric of global trade. As the company leads the charge toward a more digitalized freight future, it paves the way for a more resilient and effective operational standard in logistics.

About Freightos

Freightos has positioned itself as a trailblazer in the logistics domain by providing a software solution suite that caters to the various facets of international shipping. From pricing and quoting to shipment management and payments, they simplify the entire process for businesses globally. Their platform stands as a testament to the need for innovation within the trillion-dollar freight industry, equipping all stakeholders with the tools to navigate the complexities of today's trade landscape.