Carriers are offering index-linked contract options in the 2027 Europe tender. Before you say yes, work through five questions: how much volume, what you get in return, which index, how the rate moves and how you will secure the budget.
"We tender once a year and then renegotiate all year." That's how Anna sums up 2026. Her annual fixed-rate contract looked safe, but when rates fell her own management pushed for savings and she went back to renegotiate, and when the market tightened, new surcharges and amendments followed. Budgets weren’t met, cargo got rolled and everybody was stressed.
Meet Anna, our fictional persona. She is Head of Logistics Procurement at ACME Home Furnishing GmbH, a home furnishings importer in Hamburg moving about 1,500 FEU a year from Shanghai and Ningbo to Hamburg and Rotterdam. Her 2027 Europe tender is now under way, and decisions are due by mid-December.
Anna wants to try something different for her 2027 contract. Her carrier has offered an index-linked contract (ILC) for part of her volume. Instead of a fixed price, her rate would follow a published freight index plus an agreed offset, reset on a regular cycle. More carriers now offer this structure, and it can take much of the friction out of a volatile year. But a floating price also shifts price risk towards her. "If I give up a fixed price, what do I get in return?"
Before she says yes, Anna should work through five questions. Choosing the index is only one of them. Thinking through these 5 questions will help her get the most out of her carrier negotiations this season.
An ILC doesn't have to be all or nothing. Many shippers start with a share of their volume, for example 30–50%, and keep the rest on fixed rates and spot. Anna needs to decide how the index-linked share sits alongside her fixed contract and her spot cargo, and what mix fits her budget and her appetite for market risk.
What if she skips this question? If Anna moves all her volume onto an index-linked rate at once, her whole freight bill follows the market from day one, before her team has the processes in place to track and explain it.
A floating price adds price risk to the contract, so Anna should ask for more in return: guaranteed allocation, a commitment not to roll her cargo, and agreed service levels. That trade-off is at the heart of the negotiation.
These trade-offs can help Anna decide how much of her cargo to move onto the index-linked contract. If Anna can secure guaranteed equipment and space in exchange for an index-linked contract then she can allocate her absolutely must-move cargo to this part of the contract.
What if she doesn't ask? She takes on the market risk while keeping the same service terms she had under her fixed contract, so she gives up price certainty without gaining anything for it.
The index only works if it tracks the rates Anna is actually invoiced, as close to the live market as possible. Five tests tell her whether the index is fit for purpose:
What if the index doesn't fit? If the index covers different charges from her contract, or tracks a different mix of ports, her rate can drift away from what the market is really charging her. The offset she negotiated then no longer means what she thought it did.
Anna needs to agree the mechanics of the ILC: a) the offset (a dollar amount or a percentage on top of the index), b) the reset cycle (for example monthly, using the average of the published index over the month), and c) any triggers that prompt a change if the index moves outside an agreed band.
What if it's left vague? Without clear rules, every move in the market becomes a new negotiation, which is exactly what she is trying to escape.
Her CFO, Markus, wants a 2027 freight number he can forecast, and something he can explain when actuals move away from it. "Last year I could only say it depends on the market." An ILC makes the contract easier to live with, but it doesn't give Markus a fixed freight budget number.
If Anna wants budget certainty, she needs a way to hedge the market rate exposure on the ILC. Hedging can be done at any time before or during the contract but the set up should be done at the same time as preparing for the ILC. She should ask: is there a listed futures or options contract that settles on this index for her trade? How easy is it to access, and how well connected is the exchange it trades on? Where is the liquidity? And what will it cost in trading fees and margin? We explain how futures and options work in Part 3 of this series.
What if she leaves it until later? Setting up for hedging can take time. Leaving the set up until later reduces the possibilities that Anna will have to secure her budget.
To make question 3 concrete, here is how one index, the NYSHEX Freight Index (NYFI), answers it. Ask the same questions about any index you are offered.
Five questions, and one trade-off to propose: an index-linked rate on part of her volume in return for guaranteed allocation and agreed service levels. If the answers she gets are vague, so is the contract.
In our next blog, "A Rate That Follows the Market", we look at why index-linked contracts are going mainstream and how to structure one.
Join our NYFI Webinar: Anna's Tender - Designing a Contract That Doesn't Break. Live on Thursday 19 November at 09:00 CET (Europe & Asia) and 16:00 CET / 10:00 ET (Europe & US). Rich Heath reviews Anna's last contract and rebuilds it as an index-linked one.
Pick your run and register for the webinars here: https://nyshex.com/webinar.
This blog is part of our series following Anna through the 2027 Europe contracting season, leading up to two live NYFI webinars on 19 November and 10 December. Read more here:
Anna and ACME Home Furnishing GmbH are an illustrative composite, not a real customer. All prices and figures in examples are illustrative. This article is for educational purposes only and does not constitute financial, investment, legal or trading advice.
Want to compare plans first? See what's included in NYFI PRO.
NYFI is published weekly, every Friday at 10:00 ET, based on rates for cargo shipped in the previous week. Lane examples in this article are illustrative.
This article is for general information only and is not investment advice. Trading futures and options involves risk, including the loss of the premium paid.
This article is for general information only and is not investment advice. Trading futures and options involves risk, including the loss of the premium paid.
Want to see how an index-linked contract with a hedge would have performed on your lanes? Simulate your contract with NYFI here.
Want to see how an index-linked contract with a hedge would have performed on your lanes? Simulate your contract with NYFI here.
Want to see how an index-linked contract with a hedge would have performed on your lanes? Simulate your contract with NYFI here.
Want to see how an index-linked contract with a hedge would have performed on your lanes? Simulate your contract with NYFI here.
Want to see how an index-linked contract with a hedge would have performed on your lanes? Simulate your contract with NYFI here.
Want to see how an index-linked contract with a hedge would have performed on your lanes? Simulate your contract with NYFI here.
Want to see how an index-linked contract with a hedge would have performed on your lanes? Simulate your contract with NYFI here.
Why it matters for the container freight derivatives market
Why it matters for the container freight derivatives market
Why it matters for the physical market
Illustrative figures only. They exclude brokerage, clearing fees and margin, and do not reflect actual NYFI levels or option prices.
• A call option protects against rising rates. It pays out if NYFI settles above the agreed level. The natural buyers are those who pay for freight and want protection against rising rates: shippers, BCOs and NVOCCs buying capacity.
• A put option protects against falling rates. It pays out if NYFI settles below the agreed level. The natural buyers are those who sell freight and want protection against falling rates: carriers, and NVOCCs selling at market-linked prices.
Two numbers define every option. The strike price is the NYFI level where protection starts. The premium is what you pay upfront for that protection. A strike close to today's market rate gives more protection and costs more. A strike further away costs less and only pays out on a bigger rate move, much like choosing the deductible on an insurance policy.
Consider an illustrative example of an options hedge. A European importer ships 300 FEU a month from Asia to North Europe on an index-linked contract that moves with NYFI, so its freight bill rises and falls with the market. It has a Q1 freight budget of $3,000 per FEU, or $2.7 million for the quarter. To protect that budget, it buys call options with a $3,000 strike and pays a premium of $150 per FEU. If rates spike and NYFI settles at $4,200, the importer pays $4,200 under its contract, the option pays the $1,200 difference above the strike, and the net cost is $3,150 per FEU: the strike plus the premium. That's $945,000 less than the unhedged bill. If rates soften and NYFI settles at $2,400, the option expires unused, and the importer pays $2,400 plus the $150 premium, a net $2,550 per FEU, well under budget. Either way, the worst case was known on the day the option was bought.
Want to see how an index-linked contract would have performed on your lanes? Simulate your contract with NYFI here.
Want to see how an index-linked contract would have performed on your lanes? Simulate your contract with NYFI here.
Why fixed rates break