Several metrics or freight indices exist that can be used for benchmarking spot rates and trends in the container market, for settling container derivative contracts, and in the context of Index Linked Container Contracts (ILCCs).
Index Linked Container Contracts (ILCCs) are long term freight contracts that allow the freight rates to be paid to fluctuate with market conditions based on agreed mechanisms (such as an upper and or lower limit for the rate, dampeners, time-lagged adjustments, etc..).
The mechanism for this fluctuation needs to be based on trusted and independent sources which publish metrics/indices. The Shanghai Containerized Freight Index (SCFI) is such a metric. Another example of a metric on the freight market is the World Container Index (WCI) assessed by Drewry. The WCI provides weekly assessments of container freight rates, daily forward price estimates and a bank of historical price movements.
The SCFI moves up and down based on the weekly spot rates of the Shanghai export container transport market based on data compiled from 15 different shipping routes. The SCFI is published for each of these routes, but there is also a comprehensive index covering all routes (see figure). The SCFI’s spot rate fluctuates not on real-time rates, but on what carriers intend to charge. The SCFI is one of the metrics or indices exporters and shipping companies can use to trade derivatives against, which in theory would allow them to mitigate the extreme volatility in the freight market. While this was one of the primary goals behind the index’s creation, the SCFI failed at creating a proper derivatives market, but that hasn’t stopped industry analysts from tracking it closely.
The much broader China Containerized Freight Index (CCFI) is based on the price of containers leaving from all major ports in China, and is a composite of spot rates and contractual rates. Spot rates can deviate from long-term contract rates. By comparison, roughly 75% of the global market runs on contracted rates, so while the SCFI is useful, it is not necessarily an accurate reflection of the price being paid by the majority of shippers.