Lakefront Futures & Options, LLC., a Chicago-based derivatives brokerage, has created a derivatives group focused on the U.S. trucking and freight shipping sector.
According to a Lakefront press release, the group will “focus on helping shippers, trucking carriers and 3PLs [third-party logistics providers] mitigate volatility risk in two primary areas of risk that have a significant impact on shipper transportation costs and trucking carrier revenues – trucking rates and fuel costs.” The group will also work with opportunistic investors such as private equity firms that are looking for speculation and/or arbitrage opportunities.
Tom Mallon, Vice President of Financial & Freight Futures Markets at FreightWaves said, “Any company involved in the freight market is potentially exposed to the volatility of rates in the trucking market. Unstable prices create cash flow management issues. By trading Trucking Freight Futures, a participant can mitigate some of its exposure to the volatility of trucking spot-rates and therefore more accurately forecast its forward cash flows.”
Mallon further stated, “We are excited that Lakefront has recognized the risk management and value-added service opportunities that Trucking Freight Futures brings to the trucking industry.”
The new group within Lakefront will be managed by Gary T. Saykaly, a logistics and freight veteran. He was previously managing director/owner of Phoenician Logistics in Atlanta, and worked previously at Franklin Street, Cushman & Wakefield and CBRE, among others.
Saykaly stated, “The trucking and freight sector is currently going through a paradigm shift with the digitization of the industry and the launching of both a trucking forward and futures market [FreightWaves’ Trucking Freight Futures]. We are now in a three-dimensional trucking market – spot, forward and futures – and the optimal execution strategies for market participants might be engineered via a combination of solutions in all three markets.”
Saykaly also said, “The trucking sector is a $750 billion industry that is relatively unhedged. With trucking rates and fuel costs remaining volatile, market participants need an effective risk management strategy which derivatives can provide if properly structured.”
Lakefront highlights multiple benefits of purchasing Trucking Freight Futures. For shippers, there are reduced trucking rate volatility risk and transportation costs, as well as improved supply chain planning. For carriers, Lakefront states that they will benefit from reduced trucking rate and fuel cost volatility risks, as well as enhanced revenues, improved cash flow, forecasting and budgeting. For 3PLs, benefits include reduced trucking rate volatility risk and transportation costs, as well as enhanced revenues. Finally, for opportunistic investors, Trucking Freight Futures offer an alternative asset class that provides speculation and arbitrage opportunities.
Most carriers have at least two types of freight rates (contract and spot). Compared to spot rates, contract rates are more stable. But 2019 has been very volatile so far; both contract and spot rates have trended downward from 2018 rates.
Despite overall market trends, spot rates can fluctuate throughout the day, week and year. In fact, on a given freight lane, a rate may increase or decrease 10-15 percent within a given week. Generally, contract rates are not subject to this sort of volatility, and normally stay in place for a year.
Mallon also said, “Unfortunately for carriers, shippers and intermediaries with any exposure to trucking spot rates, previously there was no way to manage the volatility. And that volatility can wreak havoc on cash flows, even if exposure is limited. By using Trucking Freight Futures, participants can enjoy more predictability.”
Mallon further added, “In today’s rate environment, carriers can use futures to protect against further rate compression, shippers can use futures to lock in rates for the next 16 months and 3PLs can protect their margins while providing better customer service.”
In addition to its Chicago headquarters, Lakefront Futures & Options has 15 branch offices located throughout the U.S. The company specializes in hedging, speculation and managed futures. Lakefront’s Trucking Derivatives Group will provide shippers, carriers and 3PLs with hedging and profiting solutions via trucking rate futures, forward contracts, fuel derivatives and the Dow Jones Transportation Index Futures.