Xeneta's main offering is based on gathering rate data for containers shipped between two ports within a given time period.Typically, these Point A to Point B contracts are where the core functionality of our product lies. However, this approach may run into a problem when one or both ports fall within a lane with minimal or no container traffic data available.To address these instances, we’ve introduced the concept of estimated rates.How Estimated Rates WorkEstimated rates allow us to construct what we believe to be a reliable estimate for rates from port A to port B when there's not enough rate data available.This means we can actually provide a rate estimate between two ports even though we don’t have any contract rates for a specific port pair. To understand how we do this, it’s important to understand the context of what makes this process possible.Hub Ports & Feeder PortsAs cargo container ship sizes have increased tremendously over the past several years, shipping rates have decreased along with the container vessel capacity. These large shipping vessels cannot enter every port, and thus only travel between the largest and best equipped ports in each region. These large ports are what we refer to as hub ports.Because smaller ports still need to move container freight between one another as well as between hub ports, they are serviced by smaller vessels that work as shuttles.These small ports are what we refer to as feeder ports — as they are the ones feeding the global shipping network.Service ChainTo illustrate this chain of service, here is a step-by-step breakdown of the relationship between feeder and hub ports:Containers are loaded on to a small or a medium-sized vessel at the origin feeder portContainers are shuttled from the origin feeder port to the origin hub portContainers are loaded on to a large transcontinental vessel at the origin hub portContainers are transported via the transcontinental vessel and arrive at the destination hub portContainers are loaded on to a smaller vessel and shuttled to its destination feeder portAt the most basic level, we can see that the rate is typically composed of three legs of the containers' journey, with the origin hub — destination hub being the middle leg.In the example above, you can see the route a container can take to move from Jiaxing, China (CNJAX) to Aarhus, Denmark (DKAAR), with the full journey composed of the following three legs:CNJAX to CNSGH (via a feeder vessel)CNSGH to DEHAM (via a large vessel)DEHAM to DKAAR (via a feeder vessel)It's important to understand this concept because this is how Xeneta is able to provide an estimated rate between two ports even when we do not have any actual rate data for the specific port pair.How We Calculate Estimated RatesAs shown in the example above, the final rate is not simply a Point A to Point B journey and consists of several parts.With this information, we can reconstruct and estimate each leg of the journey piece-by-piece based on our available rate data for each leg, and then combine them to get what we consider to be a close estimate of the actual port-to-port rate.At a very basic level, the formula used to construct a rate estimate (referencing the illustration above) is as follows:Estimated Rate = Leg 1 Rate + Leg 2 Rate + Leg 3 RateThere are many other complexities related to reconstructing these rates and we have developed several methodologies in order to address them, but this article is intended to serve as a broad overview of the concept.How We Ensure Estimated Rate AccuracyXeneta maintains a pool of rates that are only considered valid within a particular timeframe. Estimated rates are calculated based on current and valid contracted rates, which means that all rate estimates are formed only from recent contracted rates.Our estimates are never based on data that could be considered outdated or expired.In addition to that, when estimating the feeder part of the journey, Xeneta only uses the same supplier and company. This is primarily due to the differences in rate structure between suppliers, carriers, and companies, so it would make sense to only use the same ones in parallel with each other during the calculation. Once the rates have been matched, added, and averaged, they are then used to construct what we refer to as estimated rates.As shown in the short-term market trends graph below, the difference between the actual average contracted rate (yellow line) and the estimated rate constructed from multiple feeder network contracts (gray line) is relatively low.Average contracted rate vs. estimated rate on Jiaxing (CNJAX) to Aarhus (DKAAR) The feeder network is able to adapt to volatility within the market accordingly because the contract data pool is kept up to date.Limitations of Estimated RatesWhile we can provide what we believe to be a reasonably close estimate to an actual rate, it's important to remember that it's still just an estimate and should be treated as such.Rates between feeder ports and main hub ports have very different dynamics. Competition is much more prevalent on trade lanes between main hub ports, and as such thus, rates are more volatile. However, since we tend to have enough contract rates on these main hub lanes, we can generally solve this piece of the equation quite easily.On the other hand, feeder port rates are relatively stable when compared to trade lanes between busier hubs. Since there are fewer providers and less competition, the rates are less volatile and more predictable.