Your CFO wants a 2027 freight number for his budget that you can hit. An index-linked contract keeps your cargo moving, but it doesn't fix your budget. Here is how container freight futures and options work, in plain words, and what a hedge would do for a European importer.
Anna, our fictional persona, now has a plan for her 2027 Europe tender: part of ACME Home Furnishing's 1,500 FEU will move on an index-linked contract, in return for guaranteed allocation and agreed service levels. Then her CFO, Markus, asks one question she has a hard time answering: "How do we keep the 2027 freight budget if the market rate doubles?"
As CFO Markus owns ACME's 2027 ocean freight budget: about USD 3.75 million at an illustrative USD 2,500 per FEU and 1,500 FEU volume plan. His job is to give the board a freight number he can forecast, and that he can explain when actuals move away from it. It is not a hypothetical question: in 2026, NYFI Asia–North Europe more than doubled between May and July.
A year ago Anna might have answered Markus’ question naively; "budgets will hold, we have a fixed contract", when in reality the answer depended on the market. An index-linked contract doesn't change that. As explained in our first blog an ILC keeps her contract working, but her freight cost will still move with every swing in the index the contract is linked to. To give Markus a budget number, Anna needs another tool: the one oil, power and grain buyers have used for decades to hedge market risk, and one that is now being used more and more in the container industry.
That tool is hedging, using container freight futures or option contracts. Hedging is used to create a fixed cost or maximum cost in the freight budget. It works by creating a second cash flow, which moves in an equal and opposite way to the cost of shipping cargo. It is the net result of what is paid to move that cargo (the physical flow) plus or minus the result of the hedge (the financial flow) that protects costs. It looks like this:
The two flows are completely separate. Anna's carriers, allocation and bookings don't change. That is also why the hedge is planned alongside the contract, not after it: both need to reference the same index, and approvals take time.
A futures contract is a standardised agreement on a price, volume, route and future month. It is traded on an exchange and settled in cash, so no containers change hands. NYFI container freight futures are listed on ICE Futures Europe. The specific contract that would apply to Anna’s supply chain is:
If the index settles above the futures price, the seller pays the buyer the difference. If it settles below, the buyer pays the seller. For a shipper who has bought futures, the gain or loss offsets the higher or lower freight bill.
Anna ships roughly 125 FEU a month. Suppose she hedges about half of it by buying 60 lots of NYFI Asia to North Europe futures for each month of 2027, at an illustrative USD 2,500 per FEU, the same level as her 2026 contract.
Either way, the hedged 60 FEU land at a net USD 2,500, plus her contract offset and the costs of trading (broker and exchange fees, and the cost of funding margin – more on this in the final blog in our series). Because her contract and her futures reference the same index, the hedge matches her index-linked contract 100%.
Over a full year, with about 720 FEU hedged (60 lots × 12 months, 50% of their annual volume) and the market averaging the same level all year, illustrative and before offset and costs:
Now Anna can answer Markus: "On about half our volume, the rate is fixed at the hedged level whatever the market does. On the other half, we follow the market." That's a budget he can understand, explain and justify. The conversation is no longer guesswork, but a clear decision on how much risk they intend to take, and something they can bring to the management meeting.
Futures fix the price in both directions. If Anna would rather keep the upside of a falling market, a hedge with options on NYFI give her the right, but not the obligation, to buy futures at an agreed strike price. Here are the different strategies one can run with options:
To execute an option, you have to pay a premium. This is the price of the option, paid by the buyer to the seller at the start, whether or not the option is ever used. The cost of an option changes with market conditions, so Anna needs to consider whether buying an option represents good value, or whether futures are the better fit.
NYFI forward curves, built from futures trades, bids and offers and published daily, show where futures contracts are trading for the current month and up to 36 months ahead. For Anna, that is a market-based starting point for her 2027 budget, rather than a guess. Forward curves are available in NYFI PRO, alongside sub-trade and port-pair indices.
One page with three numbers: the share of volume to hedge, the hedged rate from the forward curve, and what the budget looks like if the market doubles or halves, with and without the hedge.
Join our NYFI Webinar: Anna's CFO Call - Hitting a Budget with a Hedge, a step-by-step guide. Live on Thursday 10 December at 09:00 CET (Europe & Asia) and 16:00 CET / 10:00 ET (Europe & US). Rich Heath walks through the worked example live and explains the practical steps to get started with hedging.
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