Those on both sides of the freight business have struggled for years with volatile shipping rates. Contracts get locked in for months or more with no assurance that the contract will reflect current prices when loads are delivered.
Any number of factors can affect rates; a severe weather event, a large manufacturer opening or closing affecting capacity demand, or emergency road construction on a bridge that shuts down a major highway for weeks. There are many other reasons rates rise and fall, and shippers and brokers are equally at risk of overpaying for shipments as carriers are for undercharging.
For instance, according to DAT Trendlines for the week of Feb. 12-18, 2017, van load-to-truck spot rates were up 4.1% over the prior week and flatbed load-to-truck rates were up 9.1%.
One company that is trying to offer stakeholders tools to manage their exposure to this volatility better is Chattanooga, TN-based TransFX. The company is working to create the first Trucking Futures Exchange, which will list and trade contracts based on trucking line haul rates.
Those contracts will be financially settled using DAT Solution’s data under a new alliance the companies announced.
“DAT is the truckload pricing index standard for the North American trucking market, and it makes perfect sense for us to partner with them,” said Craig Fuller, TransFX CEO. “We did an exhaustive search into the various index providers by speaking with over 200 C-Level executives across the trucking marketplace and found DAT to be the most trusted and reliable provider of spot market data. In addition, we have extensively analyzed selected aggregated data sets and validated that the assessments closely mirror the overall direction and volatility of the underlying market.”
While the futures contracts do not affect the physical shipment of goods – or the rates agreed upon between parties – they do offer another tool to affect the bottom line. Spot prices face swings as high as 40% on some major lanes, the companies said.
“We have observed supply and demand fluctuations and periods of significant truckload capacity constraint over a period of years, and recognize the financial risk that our customers face,” said Don Thornton, senior vice president of sales & marketing at DAT. “We are impressed with the TransFX team, their depth of experience and knowledge of the trucking marketplace and capital markets. Together we are looking forward to building a supplemental capability for transportation professionals to manage rate volatility risk with no interruption to the way they do business today.”
TransFX said it has identified the most travelled lanes in the market and found major intra-week and intra-month volatility. DAT data will be used to help develop TransFX trucking futures, which will allow market participants to normalize these price fluctuations.
Established in 1978, the DAT on-demand freight exchange is the largest and most comprehensive such exchange, with 100 million loads and trucks posted in 2016 and $33 billion of spot and contract lane pricing data from actual freight transactions. Brokers, 3PLs, shippers and carriers rely on DAT’s historic and real-time price data as an industry benchmark.