Drewry's World Container Index hits two-year high as rates keep climbing

The Analysis

Drewry's 9 July assessment put the World Container Index at a two-year high, and the number everyone is quoting from it is the one on the Trans-Pacific: rates nearing 8,000 dollars per FEU. Asia to Europe headhaul rates stayed firmly up. Drewry attributes the run to peak-season demand, capacity discipline and geopolitical risk, and the analysts are doing what analysts do at a two-year high, which is to argue about whether demand has peaked while surcharges keep stacking on top of it.

From where I sit, that whole debate is a distraction dressed up as a question. Whether demand has peaked is an argument about the base rate, and the base rate is not the line that decides my unit cost this season. The base is either already locked or is the thing I am about to negotiate, so either way it sits in a contract I can read. The surcharges are the other half: they arrive by email, on a stated date, charged against a base I do not control, and they are the part most buyers have never once put into writing. Freightos and Drewry can argue about the peak. On the buying side, the thing that actually moves my number is the clause.

I will leave the rate-sheet dissection to my colleague Vivian Zhao, who reads the numbers more cleanly than anyone on the desk. I want to stay on the one question a buyer can answer with a signature: when the market is near a two-year high and the surcharges keep stacking, what exactly am I agreeing to, and what does it cost me if I am wrong about the top.

Start by splitting the ticket the way a procurement ledger splits it, because the headline and my invoice are not the same object. The number in the news, near 8,000 dollars per FEU on the Trans-Pacific, is a base rate before the extras. My invoice is that base, plus whatever surcharges have taken effect by the time my container moves, plus, at the destination end, the inland and the storage that the surcharge conversation never touches. When Drewry says surcharges keep stacking, it is telling me the gap between the headline and my invoice is widening, and the gap is the part I have the least control over and the part most buyers leave unread.

Put numbers on it so it stops being abstract. Assume my Trans-Pacific volume is 1,200 FEU a year. Assume the rate I could sign today is 7,800 dollars per FEU, just under the near-8,000 print, which is a negotiating position and not a market fact. Assume the quote carries surcharges equivalent to 12 per cent of the base, so about 936 dollars a FEU, and that three further surcharges land across the contract year at 300 dollars each, which is an assumption about stacking and not a number from the article. On that picture the base line is 7,800, and the extras line starts at 936 and can reach 1,836. The extras alone, at 1,836 a FEU across 1,200 FEU, are about 2.2 million dollars. If nobody caps them, they are simply a second contract hiding inside the first.

Why is this stacking now, at a two-year high, rather than in a calm market? Because peak-season demand, capacity discipline and geopolitical risk are all pulling the same way at once, and each of them is a legitimate reason for a carrier to file a charge. Peak season supplies the demand reason. Capacity discipline, which is what Drewry calls it when carriers hold tonnage back, supplies the supply reason. Geopolitical risk supplies the cost reason, because a reroute away from a risk area burns fuel and days that somebody has to pay for. Three different justifications, one invoice line, and not one of them is a number I can audit from my side of the table. That is exactly the condition under which charges multiply without anyone being able to point at a single villain, and it is why an annex that lists them by name matters more than a base rate everyone can see.

That is why I think the surcharge clause is worth more than the base negotiation this year. The base is visible, the carrier knows I am watching it, and it is the thing both sides walk into the room expecting to fight over. The surcharge is quieter. A bunker adjustment or a peak-season charge is often expressed as a percentage of the base, which means it compounds: every time the base moves up, the surcharge moves up with it, in the same direction, on the same shipment. If the base has just gone to a two-year high and the surcharge is a percentage of that base, then the peak is being charged to me twice.

Here is the thing the coverage is not saying. The debate about whether demand has peaked and the complaint about surcharges stacking are treated as two separate stories, and they are not. They are the same risk seen from two ends of the same contract. Surcharges stack hardest at the top of the market, and they come down far more slowly than the base does. So if I sign at the peak, I do not just take the peak base. I take peak-cost surcharges indexed to a base that is about to become the highest base of the cycle, and those surcharges are the last thing to reset when the market turns. The base retraces, the surcharge ratchets. That asymmetry is the real exposure, and it is set by the clause I sign, not by whether the analysts are right about the peak.

Then price the peak debate itself, because it is being discussed as an intellectual question and it is really a bet. Assume I sign a flat 12-month rate at 7,800 dollars per FEU rather than staying on spot. Every one per cent the market moves is 78 dollars per FEU, and across 1,200 FEU that is 93,600 dollars. A 10 per cent miss on direction is roughly 936,000 dollars. If demand has peaked and spot falls 15 per cent to about 6,630, I have overpaid about 1.4 million dollars over the year. If demand has not peaked and the market runs another 12 per cent to about 8,736, the fixed contract has saved me about 1.12 million. Same signature, opposite outcome, and the magnitude is the point: the question the analysts are debating is, for a buyer at 1,200 FEU, a million-dollar bet on a forecast I am not qualified to make.

The two lanes in the assessment do not let me dodge it either. Trans-Pacific rates are nearing 8,000 per FEU, and Asia to Europe headhaul rates stayed firmly up. If I source in Asia and sell in both the US and Europe, which is the shape of most of the books I have run, there is no soft lane to hide in. Neither headhaul is offering relief, so splitting volume between the two is not a hedge against the market; it is a hedge against one lane being worse than the other. That is worth knowing, and it is not the same thing as being covered.

Who carries this depends on the size of the book and the shape of the contract. A buyer with 1,200 FEU and a treasury function can afford to sign a mixed structure and absorb a variance; the million-dollar swing is one line in a forecast. A smaller importer at 120 FEU, a tenth of the volume, faces the same per-FEU move at a tenth of the total, so about 94,000 dollars on a 10 per cent miss, but it lands on a balance sheet with no cushion and often with no ability to reopen the contract mid-year. And a buyer whose product is low-value and high-cube, furniture and home textiles again, is hurt twice: freight is a bigger share of landed cost, and the peak-season surcharge hits a container full of bulky goods that cannot be stored cheaply if the timing slips. The category that reads a surcharge email last is the category that frontloads hardest, and that is the one I know best.

The impact also splits by what kind of buyer I am. An importer on a 12-month fixed contract is not exposed to this week's number at all; the exposure is already embedded in terms signed months ago, and the only live question is the surcharge annex, which may or may not still be open. A buyer on a quarterly or tender-based contract is exposed at the next open, which is weeks away, and can still move. A spot buyer is exposed on every booking and has the most flexibility and the least protection at the same time. So two buyers reading the same two-year-high headline can be facing completely different exposure, which is why the paper that decides the outcome is not the index but the term sheet.

And a word on how this lands inside the company, because a buyer does not get to keep the surcharge debate inside the procurement team. Finance sees one landed-cost number, and it sees it move without a story attached, so every uncapped surcharge shows up as an unexplained variance. The fix is not a cleverer forecast. It is a short annex that says, in dollars, what the maximum surcharge exposure is for the year: at an assumed 1,836 dollars a FEU across 1,200 FEU that number is about 2.2 million, and putting it on the page turns a mystery into a budget line the company can decide to accept or hedge. A buyer who can show the 2.2 million and choose to cap it at half is worth more in that meeting than one who forecasts the base to the dollar.

There is a planning defect underneath all of this that almost nobody names. The annual landed-cost assumption in the brands I have worked for is a single blended base rate, and the surcharge annex, if it exists, is a paragraph nobody in finance has read. So when the base goes to a two-year high, the plan sees the base move and misses the extras entirely, even though the extras are the faster-moving and less-controlled half of the ticket. A buyer can forecast the base wrong and still make the year if the annex is tight. A buyer can forecast the base right and miss the year if the annex is loose. That is a strange thing to be true at a two-year high, and it is the one most likely to ruin a quarter.

Timing is where buyers misplace the risk. A new surcharge lands on a stated effective date, usually within weeks, and applies to shipments on one side of that date. A fixed base only resets at the term end, which for a 12-month contract signed now is a year away, into the next cycle. Spot reprices continuously. So the immediate exposure this season is not the base, because the base is either locked or being negotiated right now, and it is not spot, because spot is a decision I make weekly. The immediate exposure is the surcharge, which lands on its own schedule and, if the clause is loose, on its own terms. A buyer who watches the base every day and never reads the surcharge annex is watching the part of the ticket that cannot surprise her and ignoring the part that can.

Flip it and see where the contract wins. If demand has not peaked and rates run further, a fixed base at 7,800 looks cheap within a quarter, and the surcharge cap I fought for is the difference between a known and an unknown number. If demand has peaked and the base retraces, my fixed base sits above the market for the rest of the year, and no surcharge clause saves me from that, because the clause governs the extras and not the base. The boundary is that the contract wins only if the market runs above my fixed number for longer than the surcharge ratchet takes to unwind, and the ratchet unwinds slowly. That is the case for never taking a flat 100 per cent fix at a two-year high, whatever I think the peak looks like.

So, if this were my book. I would not sign a flat 12-month fix in the week of a two-year high with no way out. I would split it: about half fixed to give finance a floor, about a third on an index-linked tranche with a floor and a ceiling, and the remainder on spot, and I would write those proportions into the contract rather than agreeing them verbally. On the index tranche I would tie to a published index, reset monthly, and set an opening band of plus and minus 10 per cent around the signing reference, with a renegotiation trigger if the index moves more than 15 per cent across two consecutive prints, because a band that never reopens is not a band, it is a fixed rate with extra steps.

The surcharge annex is where I would spend my negotiating capital this year. Fix every bunker and peak-season element as absolute dollars per FEU so it cannot compound with the base. Cap the total surcharge as a stated share of base, and my opening position would be 8 per cent. List every effective date and, more important, say which shipments fall on which side of each date, because the argument is almost never about the amount, it is about whether my container moved before or after the cut. Keep a 10-business-day window to dispute a charge with the underlying cost evidence. And write the down-leg: when the underlying cost falls, the surcharge adjusts on the same schedule, not when the carrier gets around to it. A one-way ratchet is not a market clause, it is a gift.

There is one more discipline that separates a buyer who negotiates surcharges from one who just pays them, and it is evidence. A surcharge should come with a basis: what cost moved, by how much, and against which published reference. If the carrier can give me the reference, I can decide whether to accept it, dispute it inside the window, or build it into next year's base. If there is no reference, then the charge is not a cost pass-through, it is a price, and I treat it as one, which means it goes into the base negotiation and not into an annex. Asking for the reference does not insult the carrier. It is the same thing the carrier would ask me for if I claimed a rebate.

On sourcing and routing, the two-lane picture matters. Since neither the Trans-Pacific nor Asia to Europe is offering relief, the useful move is not to switch lanes but to widen the number of ways each lane can be served, so a surcharge or a capacity squeeze on one gateway does not meet my whole book. I would split each headhaul across at least two gateways and, where the product allows, keep a second origin qualified, and price the transit-day penalty into that decision the same way I price the freight. Assume I move 15 per cent of the Trans-Pacific book through a second gateway and find the all-in is 4 per cent lower after inland and transit: that is a real saving, and it is worth having a number attached before the meeting, because nobody accepts a routing change on a feeling.

One more thing on lead time, because it changes what the contract actually governs. Signing in July for cargo that moves from August onward means the first shipments are already committed, and the contract really governs the shoulder and the next peak, not this peak. That matters because the demand-peak debate is about the next six months, and the contract I sign today is a bet on the same six months, so the two things are the same bet whether or not I frame them that way. If I sign at the top knowing the contract mostly covers the period after the peak, I am paying peak prices for shoulder cargo. That is the quiet error, and it is the reason to leave the shoulder floating and fix only the peak.

For the peak question itself, I would hedge the shape rather than the direction. Commit the peak, keep the shoulder flexible. The peak-season cargo is going to move regardless, so I would lock the base and cap the surcharges for the peak window, and take certainty where I can get it. The shoulder is where the market will tell me whether demand has peaked, so I would keep the shoulder on the index tranche and the spot tranche, and let it follow the prints. That way, if the peak call is right, I have fixed the part I could not avoid anyway and left the part I can still steer. If the peak call is wrong, I have paid up for the peak, which is roughly what I would have paid on spot, and I still keep the down-leg on the surcharges.

My instinct on all of this is that the loudest number in the story, the near-8,000 on the Trans-Pacific, is also the least actionable one for me. I cannot control the base, and neither can the carrier across a full cycle. What I can control is the shape of what I sign: how much is fixed, how much floats, what the float is anchored to, what the extras can and cannot do, and when the whole thing is allowed to be reopened. If I were signing this week, I would not sign the base. I would sign the clause, and I would make the carrier show me the down-leg in writing, because at a two-year high with surcharges still stacking, the only number I can still choose is the one sitting in the annex that nobody is reading.

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— By Grace Yang