The $726 billion trucking industry is about to undergo what may eventually be seen as its most significant transformation in a generation. On March 29 an exchange market will open for the buying and selling of freight trucking contracts. Both shippers and carriers will now have an opportunity to protect themselves against contract and spot rate disparities estimated at $100 billion annually.
“A futures trading market for freight contracts is one of those ideas that when you hear it, you immediately think ‘I can’t believe this doesn’t already exist!’ It’s so obvious and yet so revolutionary,” says Kyle Lintner, the new Director of Markets for K-Ratio. “Our market is extremely volatile and the day-to-day variance in contract rates provides an opportunity for traders who are also active members of the market to protect their bottom lines. No one is insulated from rate movements.”
K-Ratio is a newly formed subsidiary of K and L Freight, a transportation company based in Chicago. By complementing its decades of industry experience with cutting edge data analytics the company is aggressively positioning itself as a leader in the new freight landscape. Recent management hires underscore this by leveraging backgrounds in applied quantitative mathematics, software development, and licensed financial market trading. K-Ratio predicts that the market will have long-lasting benefits for all participants and is developing customized services for its existing brokerage clients as well as a new suite of solutions for shippers and carriers that want to hedge their financial exposure or insure smoother cash flow.
“Any business, whether publicly-traded, privately-held or backed by private equity, that has ever missed its quarterly profit projections because freight costs came in higher than expected will immediately understand the value of this market,” says Lintner. “This is Risk Management 101. If you’re a carrier that faces cash-flow issues because of spot rate volatility, you need to take a serious look at this opportunity. 3PLs, who are exposed at both ends, that don’t participate will lose competitive advantages very quickly as profitability shifts from volume to efficiency.”
DAT Solutions will provide the spot rate index against which the Trucking Freight Futures Contracts are traded on the Nodal Exchange. As rates have become more transparent in real-time across all freight lanes, the industry has become more tightly connected. By introducing an option for trading against future rates, those rates are predicted to become even more stable. 40% of S&P 500 companies say that transportation costs are the most substantial risk to their earnings.
By the numbers the Trucking Freight Futures Market is projected to:
• Facilitate sales of approximately 40 million transportation contracts annually
• Cover trucking contracts on 40 billion miles of roadway
• The Exchange will initially cover 7 Van lanes: LA to/from Seattle; LA to/from Dallas; Chicago to Atlanta; Atlanta to Philadelphia; and Philadelphia to Chicago
As the Trucking Freight Futures Market prepares to opes, K-Ratio is working as a certified trade advisor to prepare industry participants (shippers, carriers and third party logistic companies) for the risk management opportunities that the market will provide. Once the market opens K-Ratio will become a transactional brokerage.
The company is currently sponsoring a multi-city Road Show in partnership with FreightWaves to educate potential market participants about the opportunities and benefits of trading future trucking freight contracts. Host cities include: New York, Chicago, Houston, Dallas, Chattanooga, St. Louis, Atlanta and Detroit.
