Are index-based shipping contracts a trap for BCOs?

For many beneficial cargo owners (BCOs), index-based freight contracts are increasingly positioned as the modern, data-driven answer to volatile shipping markets. On paper, they promise transparency, fairness, and alignment with prevailing market conditions.

In practice, however, many shippers are discovering that index-linked pricing can quietly transfer risk rather than create value. As supply chain volatility becomes structural, we must ask: are these contracts serving BCO interests, or are they simply convenient mechanisms for carriers to offload uncertainty?

The shift toward indexing was the logical outcome of structural changes over the last 20 years. In the 1990s, annual fixed-rate contracts were workable because rates moved within predictable bands. That changed dramatically due to the Global Financial Crisis, carrier consolidations, and pandemic-era shocks. For shippers, spot exposure became commercially unmanageable, while carriers learned that long-term fixed rates were financially dangerous. Indexing emerged as a compromise to float pricing with the market and pass the risks to BCOs.

Industry consolidation fundamentally altered contract dynamics. By the late 2010s, the top 10 carriers controlled approximately 85% of global capacity. This concentration allowed carriers to push back on fixed pricing and introduce index-linked models as a condition of capacity access. Indexing was not just a pricing innovation; it was a power shift that many logistics managers were not equipped to counter.

This was supported by the explosion of freight indexes like the SCFI and Xeneta, which provided data that looked objective and defensible. Procurement teams liked indexes because they provided auditability and benchmarks, helping to disguise perceived incompetence. Carriers liked them because spot market volatility could be passed through contractually, shifting revenue risk downstream to the customer.

Indexes are marketed as objective reflections of reality, yet most are built on spot market data—the most volatile segment of the market. This creates an inherent mismatch for BCOs who operate on annual budgets and long-term planning horizons. When rates spike, index-linked contracts adjust almost immediately. When markets soften, relief is often slower or diluted through averaging mechanisms. Transparency without balance is not partnership; it is exposure.

A critical weakness lies in how risk is allocated. While carriers benefit from pass-through pricing during disruptions, BCOs absorb cost volatility without equivalent protection on service levels. Cargo rollovers and blank sailings rarely trigger contractual consequences; the index moves, the invoice adjusts, and the shipper pays.

Furthermore, when pricing becomes automated, shippers lose the ability to leverage volume commitments or long-term loyalty. What was once a strategic procurement discussion becomes an administrative exercise. BCOs may find themselves paying rates reflecting volatility they did not create, while losing influence over service outcomes they critically depend on.

Indexing itself is not the enemy—it is a tool, not a strategy. These structures can make sense in tactical lanes or short-term commitments, provided they include governance mechanisms like rate ceilings, floors, and service-linked adjustments. The problem arises when indexing becomes the default rather than the exception.

In today’s environment, the most important question is no longer “What is the market rate?” but rather “Does this contract give us control, predictability, and accountability?”. True resilience is built through contracts that align incentives and recognise that volatility is now a permanent feature of global trade.

As we move toward 2026, the next evolution will not be about better indexes, but about smarter contract architecture. This includes hybrid pricing, risk-sharing mechanisms, and true partnership models. In a structurally volatile world, pricing formulas alone are not a strategy.