The “Futures” of Trucking

This Friday, March 29th, will mark the launch date of the world’s first financially settled Trucking Freight Futures market. The market will be a partnership between Nodal Exchange, FreightWaves and DAT. The goal of this newly created market is to provide a way for carriers, shippers and 3PL providers to hedge their financial exposure to truckload spot rate volatility.  According to Craig Fuller, CEO of FreightWaves “Nearly every industry with a commoditized product benefits from a futures market – except for trucking.” However, the questions posed are “why now?” and “if Trucking Freight Futures are such a good idea, then why hasn’t anyone done it before?” The answer is two-fold.

First is technology, for any viable futures market to exist there must be accurate and robust market data, news and commentary to provide information to traders.  Until recently that information just has not been accessible on a large scale; however, thanks to the advances in telematics, the landscape has changed. Most drivers are now in possession of smart phones, trucks belonging to large fleets are connected on a network and the implementation of mandated ELD laws has put very powerful devices in the cab of nearly every truck in the market. For the first time ever there is visibility to real time capacity and where any excess capacity is needed most.

Secondly, trucking’s “OPEC moment” has occurred. From the perspective of FreightWaves, “the recent ELD mandate along with an unusually active hurricane season in 2017, was the transportation industry’s “OPEC moment.””  Both events shrunk available capacity drastically in the middle of a very strong economic cycle. In response, trucking spot rates rose as much as 62 percent and driver wages rose an average of 12 percent. New truck orders broke records every month. Major manufacturers and brands began raising prices of their products to offset the rising transportation costs. At the end of 2018, the capacity crunch ended as quickly as it started. Rates plummeted, eventually crashing in the first weeks of 2019 leaving many small and medium sized carriers over invested and wondering what to do.

The transportation services industry is a roughly $720 billion market that directly or indirectly effects every business and consumer around the world. Beginning on Friday, this new tradeable market will be used by trucking fleets to hedge against their natural exposure to price, shippers and carriers will hopefully be able to smooth out their expenses and revenue, making their businesses more predictable and sustainable. 

 

https://www.freightwaves.com/news/fw-news/freight-futures/nodal-exchange-fw-dat-launch-trucking-freight-futures-contracts?utm_content=87281855&utm_medium=social&utm_source=linkedin&hss_channel=lcp-11046286

https://www.businessinsider.com/truck-driver-pay-trucking-freight-futures-2019-2

https://www.businessinsider.com/trucking-industry-opening-futures-market-2019-2

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