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Analysis: Trucking Freight Futures Trade Opportunities Range From Tempting to Painfully Obvious

FreightWaves has thoroughly covered the conspicuous absence of 2019’s summer peak freight season here and here. Within the company, many employees have heard from brokers and carriers in parcel, less-than-truckload (LTL) and truckload that rates and/or volumes are significantly softer than expected. The consensus seems to be that 2019 summer peak is looking very lean.

The DAT Van Freight Rate index for the national basket (SONAR: DATVF.VNU)  is reflecting the reality of a lean (or as FreightWaves CEO Craig Fuller said, “bloody”) 2019 summer. The index has not sustained a rate above $1.40 since early March. Of the last five years, this year to date bears the most resemblance to 2016, and rates have almost slipped back to those levels. During that year almost 15,000 trucks were idled because a higher number of carriers than usual shut their doors.

Prior to working at FreightWaves I did fundamental and quantitative analysis and trading of both stock and bond markets (both for blue-chip companies and my personal account). Typically, by the time the entire industry was aligned on the future of the economy or a sector (whether good or bad) it was too late for an individual or firm to benefit from, or protect itself against, the boom and bust.

Thanks to the young age (and the lack of quantitative and algorithmic traders) of Trucking Freight Futures, anyone who cares about the price of moving freight on trucks may have opportunities that I’ve never enjoyed – to be among the smartest, fastest and most well-capitalized investors in a market. While The DAT Van Freight Rate Index has been tracking in the low $1.30 range throughout May (blue  DATVF.VNU), futures contracts for the average rate in June (white FUT.VNU201906), July (yellow FUT.VNU201907), and August (green FUT.VNU201908) all show bid/ask prices that would require massive increases in spot rates to be realistic.

FUT.VNU201905        FUT.VNU201907        FUT.VNU201908

For the June futures price to make sense, you would need to believe that spot rates have spiked 25 percent in the last week, and can sustain that level through the end of June. July and August seem almost as ambitious. You’ve got to believe that the small group of participants in the market today know more than a dozen companies we’ve spoken to and the thousands represented by the sinking Outbound Tender Reject (SONAR: OTRI.USA) and Outbound Tender Volume (SONAR: OTVI.USA) metrics. This is the last time carriers will see such an opportunity to protect themselves against continued low rates (or worse, declines.).

In time, the opportunities presented by the Trucking Freight Futures market will attract the quants and algo-traders, with their billion dollar funds. That will be a good thing as they provide liquidity and depth-of-market, but you will not see mispricings as large as I believe this one to be once the math nerds arrive.

Full Disclosure: FreightWaves employees (including the author) are prohibited from owning or trading positions in the Trucking Freight Futures market.  

Daniel Pickett

Daniel Pickett leads the FreightWaves data science team collecting, cleaning and analyzing freight market data to drive actionable insights in the freight markets. The data team is focused on finding industry activity metrics to inform the freight/logistics community about market conditions at the local (not national) level. Using his career blend of technology and capital markets, Pickett is also focused on what real-time logistics data can provide regarding the health of the economy, the consumer and global trade. He is a CFA charter-holder with a background leading teams in software/database development, quantitative research, data science/analytics and securities research/trading. He has worked for blue chip firms including Vanguard, USAA and Unum. He has also conducted consulting engagements with firms ranging from startups to Fortune 500 companies.