“This is not your father’s shipping company,” said Patrick Draut, the Senior Vice President of Business Intelligence for K & L Freight Management who is tasked with assembling the all-star team of talent for K-Ratio. “When we talk with people about what the trucking freight futures market will be, and what we’re aiming for as a business, there’s a moment when everyone says ‘whoa, this is going to be massive.’ I think people within the industry have a sense of how everything is going to change, but people outside of the industry see this as totally uncharted territory. It’s a dream space for speculators, and disruptors and entrepreneurs.”
At $726 billion, trucking is one of the largest industries in the United States. However, contracts between businesses that need to transport freight (“shippers”) and the businesses that actually move the cargo (“carriers”) are notoriously susceptible to volatility. Factors such as weather, road construction, government regulations, driver shortages, consumer spending, oil prices and more can play havoc with the supply-and-demand economics of the industry. With too much week-to-week and even day-to-day variability in freight rates, many contracts are simply canceled by the parties and renegotiated at “spot rates” which can account for hundreds of millions of dollars annually. Beginning on March 29, 2019 all of that could change affecting businesses of all sizes and in every industry all across the country.
“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. “It’s a highly volatile market so the margins to make money are very appealing and it’s a very broad and deep market with a lot of volume. Virtually every industry depends on truck freight so there should be a lot of participation once companies understand it as a matter of risk mitigation.”
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 of the highest volume freight lanes in America
- 40% of S&P 500 companies say that transportation costs are the most substantial risk to their earnings.
- In the last 5 years, average “spot rates” (which replace “contract rates” when either party breaks transportation contracts) have increased by over 20%
- Spot rates can be 65% higher than contract rates in a given period
- 25% of all transportation contracts were canceled between June-July 2018