Futures traders hedge L.A. to Seattle in uncertain rate environment

(Photo: FreightWaves)

Yesterday, August 7, shortly before the Trucking Freight Futures market on the Nodal Exchange closed, a series of three trades were executed on the Los Angeles to Seattle lane (FWD.VLS). Fifteen contracts in total changed hands, with five each settling in October, November and December (FUT.VLS201910, FUT.VLS201911, FUT VLS201912). 

Although current spot prices on that lane are trending slightly above 2017 at $2.21/mile (DATVF.LAXDAL), the executed prices of these new trades put the lane below both 2017 and 2018, but above 2016. The October contracts traded at $2.102/mile; November traded at $2.166/mile, and the December contracts were priced at $2.223/mile. 

At this point in time there is an inflection point with regard to comparisons to previous years – 

2018 comps are starting to get easier as the peak of last year’s bull market passes, but 2017 comps are getting tougher as the beginning of the turn-up approaches. In September 2017, spot rates responded dramatically to capacity that had been gradually tightening over the course of the summer. 


(Chart: FreightWaves SONAR)

“It was great to see volume traded on the Los Angeles to Seattle lane yesterday afternoon for the fourth quarter,” commented Patrick Draut, principal at K-Ratio, a Chicago-based financial services firm that helps transportation companies develop risk management strategies, including Trucking Freight Futures. “The long coverage suggests that a shipper or broker is looking to protect its freight expense or margin on that lane. The short coverage signals that a broker or carrier enjoys doing business at the defined prices of October, $2.102, November $2.166, and December $2.223.”

Spot rates on a national basis have been mostly flat in July and August (DATVF.VNU), even as volumes stayed on course about 3 percent above 2018 levels (OTVI.USA). This is the late-summer doldrums period, as children start to return to school and grilling season has begun to wind down, but before volumes pick up heading into peak retail season. 

Freight volumes have been unpredictably lumpy as produce harvests move northward into the Pacific Northwest and New England – unusual spikes in obscure markets like Columbus, Ohio, and Jacksonville, Florida, have occurred – markets that don’t typically produce a lot of freight at this time of year. So far, there has been enough capacity in the market to handle those surges without putting upward pressure on rates. 

Renewed trade tensions with China have added uncertainty into both the macroeconomic and freight outlook, and FreightWaves believes that spot rates could plausibly break out to either side. 


“There are so many factors lined up that make the fourth quarter of 2019 a period of incredible uncertainty,” said Daniel Pickett, CFA, chief data scientist at FreightWaves. “Both sides of this trade clearly recognize that and want to take a little price risk off the table.” 

FreightWaves CEO Craig Fuller said this morning that there appears to be more upside risk than downside.

Futures traders that FreighWaves spoke to were encouraged by the volume in the market.

“From our standpoint, K-Ratio is incredibly encouraged by the market activity over the last week,” Draut said. “Developing a market is a tall order, but this recent activity signals that shippers, carriers and 3PLs [third-party logistics providers] clearly see the value in risk mitigation and having the ability to better forecast revenues and expenses.”

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