Are We Optimising Freight Rates Instead of Supply Chains?

The logistics industry has always evolved in response to disruption. One tool that has become more widely used is the freight index. Freight indices provide an independent, transparent benchmark of prevailing market rates, enabling shippers and carriers to make more informed pricing, contracting and procurement decisions.

More recently, attention has turned to index-linked contracts. These contracts are not inherently a problem. The danger is creating a commercial incentive for the industry to keep looking at the freight rate rather than the supply chain.

Index-linked contracts address long-standing challenges associated with traditional fixed-rate agreements. By allowing freight rates to move with market conditions, they reduce constant renegotiation, improve pricing transparency and lessen disputes when markets become volatile.

During the pandemic, many shippers holding long-term contracts near US$2,000 per FEU could not secure space as spot rates climbed beyond US$15,000. Fixed-price contracts became commercially unsustainable and relationships strained as each side sought to protect its interests.

Index-linked pricing emerged as a practical solution. Rates adjust with market movement, keeping agreements commercially relevant whether prices rise or fall.

Are we solving one problem while creating another?

The greatest risk is not that index-linked contracts fail to reflect market conditions. It is that they reinforce an industry-wide obsession with freight rates. Instead of conversations about carrier capability, operational excellence, schedule reliability, equipment availability, customer service and resilience, the freight index becomes the centre of every commercial discussion. Price becomes the product.

For many procurement teams, success centres on whether a rate sits above or below a benchmark rather than whether the partner consistently delivers the outcomes that matter to customers.

Rates are only one component of supply-chain performance. Customers do not judge businesses by how effectively they negotiated ocean freight. They judge whether products arrive on time, inventory is available and disruptions are managed without affecting service.

The true competitive advantage lies in reliability, visibility, responsiveness and resilience—not simply the lowest freight rate.

Index-linked pricing also exposes contracting parties directly to market volatility. Traditional long-term contracts acted as an imperfect buffer against short-term fluctuations. Indexed contracts make every geopolitical disruption, port-congestion event, drought, tariff announcement and capacity shortage feed directly into pricing.

This may reflect prevailing conditions accurately, but it transfers uncertainty directly into supply-chain budgets. Greater transparency does not necessarily create greater commercial certainty.

Successful shipper-carrier partnerships have been built on trust, long-term planning and predictable capacity. An automatically indexed contract introduces a different dynamic. It can encourage a transactional mindset in which the relationship becomes tied to the prevailing benchmark.

For organisations that reference common benchmarks, those measures begin to influence behaviour rather than simply measure it. Procurement teams monitor them, carriers adjust strategies around them, forwarders reference them in negotiations, and investors use them to assess market performance.

Goodhart’s Law warns that when a measure becomes a target, it ceases to be a good measure. The logistics industry should be careful not to follow that path. Ocean freight is derived demand; it exists to move cargo efficiently through complex global supply chains, not simply to optimise freight pricing.

World-class supply chains differentiate through:

• Schedule reliability
• Forecast accuracy
• Digital integration
• Inventory optimisation
• Risk management
• Carbon reduction
• Operational resilience

Perhaps the next evolution in logistics contracting should focus not only on how prices are determined, but on what agreements are designed to reward. Contracts could link commercial incentives to on-time performance, equipment availability, emissions reduction, forecast accuracy, disruption response and data quality.

Such agreements would encourage behaviours that strengthen entire supply chains. Pricing transparency should remain a means to an end, not the end itself.

Companies that secure the best freight rates will not necessarily lead the next generation of global trade. Those that build the most resilient, collaborative and customer-focused supply chains will.

No CEO has ever asked, “Did we beat the freight index?” They ask, “Did we serve the customer, protect margin and maintain continuity of supply?” Freight rates contribute to those outcomes, but they are not the outcomes themselves.

Index-linked contracts may solve yesterday’s problem of unenforceable freight agreements. The challenge is ensuring they do not create tomorrow’s problem by optimising freight prices instead of supply-chain performance. Supply chains optimise systems. Indices optimise variables. The danger begins when executives manage the variable instead of the system.