Ahead of the public launch of Trucking Freight Futures contracts on March 29, one company has decided to jump in feet first with a subsidiary dedicated to helping its customers navigate the futures market.
K+L Freight, a Chicago-based freight broker, announced the launch of K-Ratio on Tuesday. K-Ratio’s leadership “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,” according to a release announcing the subsidiary.
K-Ratio is one of the sponsors of FreightWaves’ Road Show, which is touring the country to explain Trucking Freight Futures. The next stop is tonight in Houston with additional stops scheduled for Dallas (February 14), Atlanta (February 18), Chattanooga (February 21) and Detroit (February 28). More stops are being added. The full schedule can be found on FreightWaves’ dedicated Road Show website at https://web.freightwaves.com/tff-road-show.
The Road Show is presented in partnership with Nodal and DAT.
Trucking Freight Futures contracts will be sold based on 11 lanes/contracts (seven origin/ destination pairs, three regional baskets and a national average). These lanes, said Tom Mallon, FreightWaves’ Vice President - Financial & Trucking Freight Futures Markets, were chosen because they are high volume and correlate to about 84 percent of all truckloads moved in the country.
K+L Freight believes that setting up K-Ratio will help it provide additional value to customers.
“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.”
Lintner noted that companies exposed to freight cost volatility will understand the value a futures market can provide. Approximately 40 percent of S&P 500 companies have stated that transportation costs are the most substantial risk to their earnings.
“This is Risk Management 101,” he said. “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. Third-party logistics (3PL) providers are exposed at both ends. Those that don’t participate will lose competitive advantages very quickly as profitability shifts from volume to efficiency.”
In the lead-up to the official launch of Trucking Freight Futures contracts, K-Ratio is serving as a certified trade advisor to prepare participants (shippers, carriers and 3PLs) for the opportunities that await the market. Once the market opens, K-Ratio will become a transactional brokerage, it said.
DAT Solutions will be responsible for publishing daily spot dry van price assessments that will be used for the final settlement of Trucking Freight Futures contracts. It will not have access to any participant trading activity. Nodal Exchange and Nodal Clear are the regulated exchange and clearing house respectively for the Trucking Freight Futures market. Nodal provides the trading platform and risk management for Trucking Freight Futures trading. The system is fully electronic; there will be no physical trading floor. Nodal also provides the regulatory compliance for the market, exchange activities and clearing house.
Estimates for the Trucking Freight Futures market include the facilitation of approximately 40 million transportation contracts annually that cover trucking contracts on 40 billion miles of roadway.