The Art of Negotiation: Navigating Freight Contracts in a Volatile Market

There is a recurring debate in freight about what should happen when market prices move sharply after a contract has been signed. When rates rise, shippers argue that carriers should honour their contractual commitments. When rates fall, shippers expect those same contracts to be respected, while carriers understandably become less enthusiastic about commitments that have moved materially below market.

The discussion often becomes surprisingly moralistic. Who is behaving fairly? Who should honor the contract? Who is exploiting the market? I think this misses the more interesting issue.

Freight pricing has always been a negotiation between two parties with different risks, different information, and different constraints. The fact that the market moves after the negotiation is not an exceptional event—it is the market. The scale of those movements makes this increasingly difficult to ignore. UNCTAD reported that the Shanghai Containerized Freight Index averaged 2,496 points in 2024, 149% above its 2023 average. It reached 3,600 in July before falling 34.1% by December, while still remaining 93% above December 2023. And this is not simply history from the pandemic era.

In July 2026, Xeneta reported Far East to US West Coast spot rates of $6,225 per FEU and Far East to US East Coast rates of $8,846. Those rates were still 231% and 234% respectively above their 28 February 2026 levels. Far East to North Europe was up 135%, and Far East to the Mediterranean 96%. Yet within the same period, rates had begun to soften as capacity increased and demand weakened. That is the commercial reality in which freight contracts operate.

The first lesson in negotiation is therefore simple: understand what you are actually negotiating. A freight rate is not simply a number. It is a price attached to capacity, equipment, routing, service frequency, transit expectations, volume commitments, flexibility, and risk allocation. A carrier is not selling a container movement in isolation. It is managing a network in which a commitment on one trade lane affects equipment positioning, vessel utilization, schedule integrity, and potentially the economics of other services.

The shipper is not buying a container movement in isolation either. The rate affects inventory, working capital, customer service, production continuity, and ultimately the economics of the supply chain. This is why arguing over whether $5,000 or $6,000 is the “right” rate is often a relatively poor negotiation. The better question is: what has changed, who is carrying the resulting risk, and what alternatives does each party actually have?

That leads to the second lesson: never negotiate from a single market number. One of the problems with freight procurement is the temptation to use the spot market as the definition of the market. But spot and contract markets are different instruments. Xeneta separates short-term and long-term contracted rates precisely because they represent different commercial commitments. Its current dataset contains more than 800 million actual contracted rates across more than 160,000 port pairs, with rates segmented by trade, equipment, and contract duration. That distinction matters.

In March 2025, for example, average Far East to US West Coast spot rates had fallen to $2,680 per FEU while average long-term rates were $2,815. On the US East Coast, the corresponding figures were $3,710 and $3,885. Spot rates had fallen 54% and 46% respectively since the beginning of the year. A shipper looking only at the spot market would see an obvious opportunity to attack the contract price. But that does not automatically make the carrier’s position unreasonable. The carrier sold something different: a degree of capacity and price certainty over a period of time. The shipper bought that certainty. The value of a contract is therefore not simply the difference between today’s spot price and yesterday’s contracted price.

This is the third lesson: negotiate the risk, not just the price. If the parties know that a particular trade lane can move 50%, 100%, or even 200% in a matter of months, then a completely fixed price for a long period is effectively a bet. Someone is taking the risk. If the carrier takes all of it, the shipper gets certainty but the carrier potentially carries enormous downside. If the shipper takes all of it, the carrier has certainty but the shipper potentially carries enormous upside exposure. There is no magical contract that eliminates volatility. It simply determines who absorbs it. Good negotiation makes that explicit.

That is where mechanisms such as indexation, review points, volume bands, minimum commitments, fuel mechanisms, temporary surcharges, and market-adjustment clauses become more interesting than a debate about whether one party is morally entitled to reopen a contract. Index-linked contracting, for example, can allow the price to move with the market rather than forcing the parties into repeated confrontations every time the market changes. Xeneta explicitly identifies index-linked contracting as an alternative to fixed-rate agreements for this reason.

The fourth lesson is perhaps the most important: understand the other side’s constraints before trying to exploit its position. A carrier saying “our costs have increased” is not sufficient evidence for a price increase. But a shipper saying “the contract says $X, therefore you must continue” is not sufficient commercial analysis either. What actually changed? Did the routing change? Did vessel utilization change? Did bunker costs change? Did port congestion increase? Did equipment availability deteriorate? Did the carrier lose effective capacity because of a longer routing? Did demand change? Did the shipper’s volume commitment materialize? Did the carrier actually incur the additional cost being claimed? Did competitors face the same cost?

These questions move the conversation from assertion to evidence. The Strait of Hormuz is a good current example. In March 2026, the US Federal Maritime Commission explicitly noted that carriers seeking to introduce increased charges had to comply with regulatory requirements, including a normal 30-day period between publication and effectiveness of tariff increases, subject to a special-permission process. The important point is not the regulation itself. It is that a geopolitical event does not automatically determine the commercial answer. There is still a question of causality, contractual entitlement, cost impact, and appropriate allocation of risk.

The fifth lesson is to separate leverage from credibility. A shipper with large volume has leverage. A carrier with scarce capacity has leverage. A forwarder with multiple alternatives has leverage. A specialized service with very few substitutes has leverage. But leverage only becomes useful when supported by credible alternatives. If a shipper threatens to move volume but has no operational alternative, the threat is weak. If a carrier threatens to withdraw capacity but has excess capacity and competitors are discounting, the threat may be equally weak.

This is why good procurement is not simply about collecting ten quotations. It is about understanding the actual alternatives available to both parties. The same principle applies when negotiating a contract renewal. If the market has fallen, the shipper should not simply say, “Your competitor is cheaper.” It should be able to demonstrate the relevant benchmark, the difference between spot and contract markets, the expected direction of the market, the volume being offered, and the value of the commitment.

Likewise, a carrier should not simply say, “The market has increased.” It should explain the capacity position, the relevant cost changes, the service being protected, and what commitment it is prepared to make in return. That creates a commercial exchange.

And this is where negotiation becomes much more interesting than procurement. A good negotiation does not ask only, “How much can I get the other side to concede?” It asks, “What can I give that costs me less than the value it creates for the other side?” A shipper might offer longer commitment in exchange for a better rate. It might provide more accurate forecasts, consolidate volumes, accept less flexibility, commit minimum volumes, or give the carrier a larger share of the lane.

A carrier might offer guaranteed allocation, provide priority equipment, improve schedule reliability, offer a review mechanism rather than a fixed increase, or provide transparency around surcharges. The price then becomes only one variable in the negotiation. This is particularly important because the underlying market itself is becoming more difficult to predict. UNCTAD describes freight-rate volatility as increasingly normal, driven by geopolitical tensions, trade policy changes, and fragile supply-demand fundamentals. In 2024, container demand recovered by 7.1%, but fleet supply grew by 7.5%, and UNCTAD notes that supply growth exceeded demand growth. That imbalance matters because today’s price tells you something about today’s market, but not necessarily tomorrow’s.

The sixth lesson is therefore to negotiate against scenarios rather than forecasts. Instead of pretending to know where the rate will be in six months, model what happens if it is 20% higher, 20% lower, or 50% higher. Then decide who should bear each scenario. A contract can consequently become a risk-sharing mechanism rather than a bet on whose forecast is correct. For example, instead of negotiating a fixed rate of $5,000 and hoping that the market remains close to it, the parties could agree a base rate with defined adjustment mechanisms. If the market moves within a certain range, nothing happens. Beyond that range, the difference is shared or indexed. The exact mechanism will depend on the trade, service, and commercial relationship. The important point is that both parties know the rules before the market moves. That is usually much easier than renegotiating after one party has suddenly become the loser.

There is also a seventh lesson that is often overlooked: timing matters. The same contract can be a very good deal or a very bad deal depending on when it is signed. Xeneta’s data demonstrates just how quickly the balance can change. Between January and August 2025, average long-term rates from the Far East to North Europe fell from $2,815 to $2,180, a 23% reduction. On the Far East to US West Coast trade, the reduction was 40%, from $3,307 to $2,000. The lesson is not that shippers should always wait. Waiting has a cost too. If capacity is constrained and rates are rising rapidly, delaying a contract can be much more expensive than locking in early. The objective is therefore not to predict the market perfectly. It is to understand the cost of being wrong.

That is a fundamentally different approach to negotiation. And perhaps that is the bigger lesson from freight pricing. Contracts are not designed to make markets stop moving. They are designed to establish what the parties have agreed to do when markets move. The best commercial relationships recognize this. A shipper should not expect a carrier to absorb unlimited economic pain simply because a contract contains a fixed number. Equally, a carrier should not expect a shipper to accept every proposed surcharge simply because market conditions have changed. Both parties have legitimate interests.

The negotiation is about making those interests explicit, understanding the constraints on each side, bringing credible data to the table, and deciding how the risk should be shared. Sometimes that means enforcing the original contract. Sometimes it means renegotiating. Sometimes it means walking away at renewal. And sometimes the smartest outcome is to change the structure of the contract so that the same argument does not have to be repeated six months later.

The mature approach to freight procurement is therefore not “hold the supplier to the price” or “let the carrier recover its costs.” As Sun Tzu might advise, it begins with understanding: Know the market. Know your own economics. Know the other side’s constraints. Know your alternatives. Put the risks on the table. Then negotiate. Because when freight prices move, both sides can be right.