Index-linked freight contracts
Index escalation clauses in contracts of affreightment and liner contracts: choice of index, settlement windows, floors and caps, and benchmark cessation risk.
An index-linked freight contract fixes the mechanism rather than the price: the freight for each shipment is calculated from a published index level over a defined settlement window, often with a floor, a cap or a collar around it. The structure is common in contracts of affreightment and increasingly in long-term liner contracts.
It converts price negotiation into index selection, and that makes the index definition a contractual term. The full article will cover the drafting choices, the settlement window and averaging convention, floors, caps and sharing bands, the treatment of a day on which the index is not published, and the cessation risk that arises when an administrator retires or redefines the referenced route. See contract of affreightment .