What Even Is an Index-Linked Contract?

By Sarah Conyngham, NYSHEX SVP of Product & Operations

What even is an index-linked contract?

Let’s start from the beginning: what’s an index?

Maybe your mind jumps to the Rolodex, that 1950s invention combining a “rolling index” of contacts — a physical way to keep information at your fingertips.

Or perhaps you think of the S&P 500, the benchmark produced by S&P Global that’s often referenced as an indicator of economic health (whether or not you agree with that assumption).

If you’re South African like me, maybe it’s the JSE All-Share Index (ALSI) that comes to mind.

In fact, there are thousands of indices like these, all with the common goal of standardizing individual observations into a single number that reflects the overall trend of that market, sector, or subject.

A New Era for an Old Industry

Despite the shipping industry’s age and legacy – after all, trade has been facilitated by ocean shipping for millennia – shipping indices are a relatively new phenomenon. There are only a handful of widely recognized ocean freight indices. And the recently launched NYFI (NYSHEX Freight Indices) are one of them.

Interestingly, though, only a subset of that handful of indices captures actual ocean freight rates (i.e., the prices shippers actually pay to move their cargo).

Imagine if the S&P 500 was based on estimated company share prices.

Why Volatility Broke Traditional Contracts

Another arguably surprising feature of the ocean freight industry is that freight rates are extremely volatile, especially since the COVID era. They can be more volatile than bitcoin.

For years, carriers and shippers have relied on long-term, fixed-rate contracts, thus moving cargo on rates locked-in once a year, or so. These were meant to create stability, but more recently, they have had the opposite effect.

When rates fell dramatically, shippers felt locked into overpaying. When rates spiked, carriers were stuck earning below market value.

Neither side was happy — and inevitably, one would push for renegotiation. The result? Broken contracts, strained relationships, and hours lost to reactive repricing instead of proactive planning.

How Index-Linked Contracts Work

Index-linked contracts solve this by tying the contracted freight rate to a trusted market index — like NYFI.

Instead of setting one fixed price for the year, both parties agree that the rate will move in line with the market as published by the index. That means the price adjusts dynamically based on real market forces.

It’s the ultimate win-win structure — a long-term commitment with short-term fairness baked in.

And because both sides agree to let the index define “the market,” there’s no need for constant renegotiation or disputes over what’s fair.

Challenges and Why They’re Solvable

Like any innovation, index-linked contracts have hurdles to overcome.

They require a shared understanding of the reference index, trust in its accuracy, and systems capable of applying adjustments consistently.

But these aren’t insurmountable.

At NYSHEX, we’re working closely with carriers, NVOCCs, and shippers to address these operational realities — from building systems that automate rate adjustments to ensuring full transparency in how NYFI is calculated.

It’s about more than just a new pricing model — it’s about evolving the commercial relationship between buyers and sellers of ocean freight into one that’s rooted in fairness, efficiency, and shared success.

If you’d like to learn more or start receiving NYFI data (free of charge), reach out to the NYSHEX team or visit NYSHEX.com/freight-indices.