Drewry’s World Container Index: Correlations And Methodology Insights

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The Drewry World Container Index (WCI) offers insights into spot container freight rates for major East-West trade routes. It includes eight route-specific indices and a composite index, all reported in USD per 40ft container. The index’s methodology involves collecting data from transport intermediaries based in Europe, North America, and Asia, ensuring the confidentiality of panelists’ identities. Only actual agreed freight rates, excluding quotes or estimates, are considered. The index factors in surcharges like the bunker adjustment factor and peak season surcharge exclude documentation and customs fees. Rates are calculated through a process ensuring individual market assessments are indistinguishable in the final WCI rate, providing a reliable benchmark for ocean freight costs.

Correlation Insights

The values demonstrate high correlations (0.98 or higher) among the WCI composite index and four ex-Shanghai lane-specific indices, suggesting similar risk profiles for these lanes. This allows for effective risk management and hedging using the composite index. However, correlations between the Rotterdam-to-Shanghai and ex-Shanghai lanes, and Los Angeles-to-Shanghai and ex-Shanghai lanes, while high (0.78), indicate some basis risk. Transatlantic lanes show varied correlations; Rotterdam-to-New York is highly correlated with the composite index and ex-Shanghai lanes (>0.9), while New York-to-Rotterdam shows a low correlation (0.31 or lower), indicating a unique risk profile.

Data Collection and Reporting

Market assessments are collected for the following routes:

  • Shanghai – Rotterdam
  • Rotterdam – Shanghai
  • Shanghai – Genoa
  • Shanghai – Los Angeles
  • Los Angeles – Shanghai
  • Shanghai – New York
  • New York – Rotterdam
  • Rotterdam – New York

Data from transport intermediaries, reported as agreed freight rates per FEU, are compiled into route-specific indices. The final WCI rate for each route is determined by calculating the median of submitted rates, discarding outliers, and averaging the remaining rates. Only the final composite and route-specific indices are published, ensuring confidentiality.

Surcharges and Inclusions

The WCI includes various surcharges in the total ocean freight reported, such as:

  • Bunker adjustment factor
  • Emergency bunker adjustment factor
  • Currency adjustment factor
  • Peak season surcharge
  • Equipment management fee
  • Port additional dues
  • Emergency risk surcharge
  • Port security charge
  • Canal surcharges

Excluded surcharges are documentation fees, booking fees, and customs clearance fees. Terminal handling charges (THCs) are included or excluded based on the specific route.

Practical Application

The WCI serves as a crucial tool for shippers and carriers to benchmark ocean freight costs, manage risks, and forecast rates. Its comprehensive methodology and reliable data collection process ensure accuracy and relevance in the dynamic shipping industry.

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Source: Drewry