Nodal Exchange, in partnership with FreightWaves, the leading provider of freight market news, data and analytics, and DAT, the largest spot freight marketplace in North America, announced the launch date of the world’s first financially settled Trucking Freight Futures contracts planned for March 29, 2019, in a March 7 statement.
A series of road shows in New York City, Chicago, Atlanta, St. Louis, Detroit, and Chattanooga evangelizing the futures contract to financial institutions and the transportation and logistics industry preceded the announcement.
“Nearly every industry with a commoditized product benefits from a futures market– except for trucking,” said Craig Fuller, founder and CEO of FreightWaves. “Because of the decentralized nature of trucking and the lack of data, trucking freight futures were once impossible. The industry is undergoing a massive transformation and the growing ubiquity of telematics, mobile devices and interconnected systems are now providing market transparency that didn’t exist previously.”
“You need a large, volatile market, a benchmarked price index, a clearing house and exchange, and finally market data, news and commentary to provide information to traders,” Fuller said on a freight futures panel in November.
The futures contracts will provide a way for carriers, shippers and third-party logistics providers to hedge their exposure to truckload spot rate volatility. Initial contracts will be based on seven lanes between major freight markets, three regional baskets of lanes and a national average truckload spot rate. These lanes have been chosen to provide a way for participants with exposure to truckload transportation costs to hedge their exposure.
At a freight futures panel at the FreightWaves conference MarketWaves18 in November, Echo Global Logistics CEO Doug Waggoner agreed that trucking capacity was a commodity and explained why trucking spot rates were so volatile.
“I’m comfortable saying that capacity behaves like a commodity,” said Waggoner. “Fifty-three foot trucks are fifty-three foot trucks. Trucking is pretty fungible to most shippers these days.” Waggoner said that the reason spot rates for trucking capacity are so volatile is because in transportation and logistics, supply and demand are inelastic. In other words, it is not the case that when trucking capacity is cheap, shippers increase production and move more freight, nor do they reduce freight volumes in response to high trucking prices.
Nodal Exchange has established a strong position in the North American monthly power futures markets with 32% market share of open interest as of year-end 2018. Nodal Exchange extended its product offering beyond power and gas with the introduction of environmental contracts in November 2018 and will further its growth into new commodities with the launch of Trucking Freight Futures.
Paul Cusenza of The Nodal Exchange outlined the role that exchanges play in the trading of futures contracts.
“What does an exchange do? We help companies mitigate price risk, credit risk, and liquidity risk,” Cusenza said. He went on to say that, like electricity, trucking capacity moves in a network made up of nodes and pathways with geographic and seasonal issues, and that providers of the commodity can’t store it in the way that grain can be siloed as farmers wait for more attractive prices.
Futures contracts will be settled against DAT’s assessment of spot prices. Founded in 1978, DAT is the trucking industry’s largest load board, with 256 million transactions matching loads in 2018 alone.
“When we first started collecting freight rate data in 2010, the goal was to provide greater transparency to transportation professionals and establish a market benchmark,” commented Claude Pumilia, President and CEO at DAT. “We continue to innovate through data insights, and our role in Trucking Freight Futures is just one example of how we are helping the industry manage risk and achieve greater success,” Pumilia added.
