Trucking Futures Exchange Could Launch This Summer
DAT Solutions has teamed with TransVix to establish a futures exchange that’ll allow trucking companies, third-party logistics providers and shippers to hedge against uncertainty in spot market rates, a venture that could launch as early as this summer.
The “Trucking Futures Exchange” would be similar in process to the New York Mercantile Exchange or Chicago Board of Trade, where futures contracts are bought and sold on commodities such as fuel, oil or grain. TransVix would offer contracts on 12 different lanes, such as Los Angeles and Dallas, and use DAT spot market data.
TransVix declined to name all the lanes, or whether it plans to offer futures contracts on a weekly, monthly, quarterly or annual basis, citing ongoing discussions with industry partners and the US Commodity Futures Trading Commission.
David Sheppard, global managing director of exchange operations at TransVix, said that an investor would purchase the futures contract using margin, or borrowed money, putting down somewhere between 5% and 10%. For example, if someone were to purchase a contract from Chicago to Dallas, about 1,000 miles, for $1.50 per mile, then the investor would put down a portion of the $1500.
“Let’s say the final settlement price, which is assessed by DAT for the particular lane, is $1.75 per mile, then they would be paid 25 cents per mile for those 1,000 miles or $250 total [after returning the borrowed money],” Sheppard said.
Craig Fuller, CEO of TransVix, told Transport Topics that he envisions larger trucking companies, 3PLs and commodity shippers to trade on the exchange. For trucking companies, he expects that the ideal clients would have a fleet of at least 200 trucks.
“I would say any carrier in the top 250 to 500 would have the scale necessary to get involved,” Fuller said.
For 3PLs, he said the exchange would protect freight brokers against swings affecting the margins between what the shipper pays them and what they pay the motor carrier.
“If spot rates increase, but they are locked into long-term fixed pricing through their [contracted] clients, their profit margins get compressed,” Fuller said. “If they had a futures contract, they could effectively hedge themselves from this happening and prevent from losing. Additionally, through the use of futures contracts, they could protect themselves in a down market by locking in a higher price from shippers and buying cheaper in the physical market.”
Don Thornton, vice president sales and marketing at DAT, said that Fuller approached him about the idea last year. DAT spent six months studying at other freight futures exchanges such as the Baltic Exchange in London, which covers maritime transportation.
“One of the things we learned is that we’re starting from a much better position because of the data we have in our warehouse that we’ve collected over the years. We felt like we had a great basis to start the business,” Thornton said.
The two companies believe there is enough volatility in the spot market even within a seven-day period to motivate commodity shippers, trucking companies and 3PLs to hedge against the rate swings.
“During the slower part of the year [now], trucks get the strongest rates on Monday because they can choose to haul or stay home. They tend to get weaker rates on Tuesday and Thursday when they are more likely to be in backhaul situations. During peak periods, shippers can be desperate to get trucks on Friday before the weekend and rates can peak late in the week,” said Mark Montague, DAT industry analyst and senior pricing manager.
TransVix and DAT hope to launch the trucking exchange this summer after signing a deal with an exchange partner and getting final approval from the US Commodity Futures Trading Commission.