How indexed rates are calculated

An index-linked contract is defined by a set of parameters. Together they decide how closely your rate follows the market, how often it changes, and how far it can move. This page explains each one, so you can read or build a contract with confidence.

Parameters fall into two groups: the base parameters every indexed contract needs, and advanced parameters that add protection or flexibility.

Base parameters

Reference index. The market index used as the benchmark for all rate adjustments. It should be a neutral source both parties agree to, so pricing decisions are objective and market-based. For example, a contract might reference the Xeneta benchmark for China to North Europe.

Adjustment frequency. How often the rate is recalculated against the index during the contract, for example monthly or quarterly. More frequent adjustments track the market more closely; less frequent ones are simpler to administer. Monthly usually gives the best balance.

Calculation day. The day of the month the new rate takes effect. For example, with a monthly frequency and a calculation day of the 20th, the rate updates on the 20th of each month.

Rate calculation method. How the index value is read on each adjustment:

• Rate on day takes the index value on the calculation day itself, reflecting real-time conditions.
• Average over period takes the average index value across a defined window, giving a steadier rate by smoothing out daily swings.

Period length. When you use average over period, this sets the window that is averaged, for example the last month. The window is the period leading up to the calculation day, so with a calculation day of the 20th and a one-month period, the rate is the average from the 20th of the previous month to the 20th of the current month.

Starting price. The initial base rate, and the reference point for every future adjustment. Best practice is to base it on recent history (the last 30 to 60 days) rather than a single day, so you do not anchor to an outlier.

Discount or premium. How the contract rate sits relative to the index, above or below it. For example, a fixed 7% discount keeps the rate competitive while preserving a predictable margin.

Minimum adjustment trigger. A threshold that must be met before a rate change is applied, so small index movements between scheduled adjustments do not create unnecessary admin. Typical thresholds are 5 to 15%, depending on how volatile your lanes are.

Advanced parameters

Rate guardrails (floor and ceiling). Upper and lower limits on the rate, protecting both sides from extreme markets. For example, the rate never falls below a floor that covers the provider's costs, nor rises above an agreed ceiling.

Short-term market adjustment. An optional mechanism to adjust when spot rates diverge sharply from the indexed rate, often applying a partial correction (for example 50% of the gap) rather than fully matching the spot market.

Volume commitment. The cargo the shipper commits to move, which helps providers allocate capacity and supports preferred pricing.

Currency management. How exchange-rate movements are handled, for example denominating rates in USD with a defined conversion approach for local charges.

See how to structure a contract in the Indexing Guide