Futures traders hedge L.A. to Seattle in uncertain rate environment

“It was great to see volume traded on the Los Angeles to Seattle lane yesterday afternoon for the fourth quarter,” commented Patrick Draut, principal at K-Ratio, a Chicago-based financial services firm that helps transportation companies develop risk management strategies, including Trucking Freight Futures. “The long coverage suggests that a shipper or broker is looking to protect its freight expense or margin on that lane. The short coverage signals that a broker or carrier enjoys doing business at the defined prices of October, $2.102, November $2.166, and December $2.223.”

Spot rates on a national basis have been mostly flat in July and August (DATVF.VNU), even as volumes stayed on course about 3 percent above 2018 levels (OTVI.USA). This is the late-summer doldrums period, as children start to return to school and grilling season has begun to wind down, but before volumes pick up heading into peak retail season. 

Freight volumes have been unpredictably lumpy as produce harvests move northward into the Pacific Northwest and New England – unusual spikes in obscure markets like Columbus, Ohio, and Jacksonville, Florida, have occurred – markets that don’t typically produce a lot of freight at this time of year. So far, there has been enough capacity in the market to handle those surges without putting upward pressure on rates. 

Renewed trade tensions with China have added uncertainty into both the macroeconomic and freight outlook, and FreightWaves believes that spot rates could plausibly break out to either side. 

“There are so many factors lined up that make the fourth quarter of 2019 a period of incredible uncertainty,” said Daniel Pickett, CFA, chief data scientist at FreightWaves. “Both sides of this trade clearly recognize that and want to take a little price risk off the table.” 

FreightWaves CEO Craig Fuller said this morning that there appears to be more upside risk than downside.

Futures traders that FreighWaves spoke to were encouraged by the volume in the market.

“From our standpoint, K-Ratio is incredibly encouraged by the market activity over the last week,” Draut said. “Developing a market is a tall order, but this recent activity signals that shippers, carriers and 3PLs [third-party logistics providers] clearly see the value in risk mitigation and having the ability to better forecast revenues and expenses.”