How Is the Freight Rate Index Calculated?

Freight Rate Index

The following defines a shipment index, describes how it adds value to your transportation needs, explains what the world’s most precise freight indexes are for you to have better freight visibility and optimal freight control.

Freight indexes are defined as economic measures of the transportation industry to reflect the response of transportation services to the economy’s demands for moving passengers and/or freight.

What Is a Freight Rate Index?

The freight index is defined as a weighted average of data gathered from freight rail, air freight, trucking, waterborne, and pipeline. It is a calculation of aggregate deliveries of freight. The freight index regularly collects international data of shipping rates from a number of freight forwarders or transportation lines. Its value lies in its consistency. The freight index creates freight rate benchmarking, an essential practice followed by freight forwarders to compare the pricing or demands for a given shipping lane or part of the supply chain at any given time. It implies that when a shipper negotiates international shipment rates, he has information about the freight rates charged by other freight forwarders at the market for a similar freight. The freight rate estimate brings transparency to freight rates and facilitates supply chain relationships. The businesses learn how to collaborate with an ultimate goal to improve the entire industry.

Freight Index vs. Combined Index

Sometimes there is confusion in defining the freight index, the passenger index, and the combined index. The freight index refers to a weighted average of data for pipeline freight, trucking air freight, waterborne, and freight rail. One can estimate in a similar way the passenger index that includes data on passenger rail, transit, and passenger aviation.

The combined index refers to a weighted average of both the passenger index and the freight index. First, the data on both modes are gathered, and then the weighted average of the passenger index and freight index is estimated to obtain an average number, which is statistically accurate.

Transportation Services Index (TSI)

The Transportation Services Index, introduced by the U.S. Department of Transportation, combines available monthly data on for-hire freight traffic, as well as for-hire passenger travel, to yield a monthly measure of the output of transportation services.

The TSI shows an increase or decrease in the volume of transportation services from month to month and provides insights on the present and future of economic development. Over time, the changes in TSI are compared to other economic indicators to understand the effects of transportation on the entire economy of the nation.

Cass Freight Index

CFI, the Cass Freight Index, is produced and published monthly by Cass Information Systems, a major freight and utility invoice processor in the US. Large shipping companies supply their freight information to Cass to track the payments and obtain monthly reports. Cass compiles and delivers the Cass Transportation Index Report, which offers useful information into freight trends and how they relate to supply chain indicators and the wider economy of the nation.

CFI includes data on all domestic freight modes. Besides, the businesses that gather information for Cass represent a wide range of sectors, including automotive, heavy equipment, pharma or medical, chemical, retail, food, OEM.

Transportation Services Index (TSI) and Cass Freight Index (CFI)

The TSI and the CFI are two fairly similar measurements. Both indexes are based on the amount of freight moved by the for-hire transportation sector and freight expenditures on a domestic level. Reports from a variety of national freight modes are included in the data sets generated for both indexes.

The TSI is published monthly, it is seasonally adjusted to eliminate variations. The total dollar contribution of transportation modes to the economy is used to weigh the index. The TSI measures the monthly changes in 5 for-hire transportation modes in ton-miles and tons.

The CFI is published monthly; it is not seasonally adjusted. The whole tonnage is added up across all modes. The CFI is based on the number of freight shipments and freight expenditures of shippers who take on Cass Information Systems to purchase for-hire transportation.

The TSI is considered a more comprehensive and transparent measure as compared to the CFI. The CFI is based on freight expenditures, whereas the TSI is created by economic value-added (EVA).

Dow Jones Transportation Average Index

Unlike the TSI and CFI, the DJTAI does not measure shipments directly. The DJTAI is a price-weighted average for 20 firms in the transportation business that solely includes stock prices for those firms. Their stocks are used to create the DJTAI. The stock mix is also calculated by the DJTAI, which has changed multiple times since its introduction in 1884.

With DJTAI, the total freight and passenger volume is multiplied by the rate charged per passenger and ton-mile to determine the transportation company’s revenue. This is the difference between the company’s earnings and the costs of fuel, equipment, and labor.

The DJTAI is not the same as the TSI in terms of how it works. This pertains to their interest rates, cost fluctuations, and the per-mile fee they charge. Unlike the TSI, which only examines current volumes, the DJTAI considers future volumes when calculating transportation stock prices.

Freightos Baltic Index (FBX)

The FBX is the world’s leading freight rate index, which provides—in partnership with the Baltic Exchange (FEUs)—market rates for 40′ containers.

The FBX, unlike other freight indexes, is based on real-time anonymized, aggregated business data collected from global freight forwarders and freight carriers, who utilize Freightos’ WebCargo freight rate management system. As such, we believe FBX is the most accurate real-time estimate of market rates. The rates are not polled or tampered with in any way but are based on the same real-time rates used commercially by the leading logistics companies.

Other Related Indexes

More shipping freight indexes are available to help you compare freight rates around the world. One of the most accurate indicators of future truck cycles is Morgan Stanley’s proprietary truckload freight index, abbreviated as Morgan Stanley Proprietary TLFI.

Why In-house Indexes Don’t Work Well?

Some shipping companies use an in-house shipping rate index of some sort. Non-company data is rarely included in the in-house index. While there are exceptions, most in-house shipping rate indexes, in practice, may not capture the whole market-wide picture. In addition, high maintenance costs make the in-house resources for data analytics unaffordable. As a result, most companies turn to a third party for analytics solutions.

Features of a Leading Freight Market Rate index

The benefits of using the freight rate index are self-evident. Still, businesses looking for an optimal rate index platform should consider the following:

  • A larger sample size is required to have more granular and market-wide perspectives.
  • Data collection consistency is required to maintain index accuracy and efficiency.
  • Data collection in near-real time is preferred.
  • Real-time analysis is a vital step to obtain descriptive and predictive transportation data.
  • The generation of significant insights. Freight management companies use indexes to obtain valuable information and supply chain KPIs.
  • More detailed functions. A logistics business index for the entire market can be useful, but it should also allow users to scrutinize the data and comprehend the contributing factors.
  • Continuous improvement of a rate index engine entails refining algorithms and creating new indexes that add value.

What Shipment Index is Used in Russia?

The FBX, a leading freight rate index, that tracks daily changes in the price of 40-foot containers in 12 main shipping lanes is used in Russia. The FBX is expressed as a 40-foot container average price. This index is the only daily-reported ocean container pricing index in the world.

Wrapping Up

CREDO TRANS is able to obtain a statistically accurate representation of international and domestic shipping activities because of the aggregate volume as well as the large variety of shippers.

Our company is driven by dynamic capacity demand, enabling the most accurate rate benchmarking in the business. Rely on CREDO TRANS’s professionals to obtain the best prices and options for your freight shipment requirements.