Trucking & Freight Markets 360°

The trucking sector is going through a major paradigm shift due to the ongoing digitization of the industry and the increased transparency resulting from the digitization and the launching of a trucking forward and freight futures market. It’s now three-dimensional market comprised of the spot, forward and trucking freight futures markets. As the trucking forward and futures markets gain traction, the three markets will become increasingly more interrelated.

This new Logistics Management section will provide a comprehensive snapshot of the trucking spot, forward and futures markets along with the diesel/derivatives market and will be an invaluable resource for market participants in the new 3-dimensional trucking market. For the purposes of this section the trucking forward market and freight futures markets are defined as follows:

Forward Market: The forward market is being established by Leaf Logistics via its digital flex dedicated forward contracts, where shippers place “buy” orders to procure future trucking capacity anywhere from two weeks to six months plus out and carriers place “sell” orders to provide trucking capacity to shippers in the same time frame. As opposed to the existing non-standardized RFP based contract market, Leaf’s forward contracts are binding and based on a standardized contract. They provide guaranteed load volume/trucking capacity and rates to shippers and carriers, and the contract rates can be hedged via trucking freight futures.

Trucking Freight Futures Market: The trucking rate futures market was launched at the end of March 2019 on the Nodal Exchange. The underlying rate, which the futures markets track, are indices produced by DAT and updated daily. There are seven directional lanes and four calculated indices, each with a 16-month series. Trucking freight futures provide a trucking rate volatility hedging tool for trucking carriers, shippers, and third-party logistics (3PL) providers, allowing them to lock in a trucking rate today for up to 16-months in the future. What does this mean for trucking carriers, shippers and 3PLs? Due to this increased transparency: • Trucking rates will become more volatile, will change more frequently and will be increasingly influenced by changes in the trucking forward and freight futures markets. Carriers and shippers will be able to see changes in trucking rates around the country in all three markets on a more “real time” basis, causing rates in their lanes to adjust much faster.

Trucking Freight Futures Market: The trucking rate futures market was launched at the end of March 2019 on the Nodal Exchange. The underlying rate, which the futures markets track, are indices produced by DAT and updated daily. There are seven directional lanes and four calculated indices, each with a 16-month series. Trucking freight futures provide a trucking rate volatility hedging tool for trucking carriers, shippers, and third-party logistics (3PL) providers, allowing them to lock in a trucking rate today for up to 16-months in the future.

What does this mean for trucking carriers, shippers and 3PLs? Due to this increased transparency:

• Trucking rates will become more volatile, will change more frequently and will be increasingly influenced by changes in the trucking forward and freight futures markets. Carriers and shippers will be able to see changes in trucking rates around the country in all three markets on a more “real time” basis, causing rates in their lanes to adjust much faster.
• Market participants can now see real time market data nationwide— inbound/outbound tender volume and tender rejection levels— and their rate expectations will be influenced by this real-time market data and will quickly be reflected in spot market rates.
• With real-time insight on rates, tender and tender rejections, trucking carriers will shift assets to take advantage of markets with high load to truck ratios, which will also impact rates in the markets they are shifting assets from to the markets they are shifting assets to.
• The traditional spot market rates have a non-transparency premium built into them; and as transparency increases, that premium will compress.

Given this increase in trucking rate volatility, it’s critical that trucking carriers, shippers, and 3PLs hedge against the increasing trucking rate volatility, as revenue/cash flow volatility results in lower market valuations for a company, especially those that are publicly traded.

Trucking freight futures provide a very effective way to hedge trucking rate risk, and the Leaf forward market provides a hedge to lock in guaranteed rates and load volume/trucking capacity on a multi-month basis. There are also viable cross-market hedging/ profiting strategies that can be executed on in conjunction with the trucking forward/futures markets.

3-dimensional execution: The new three-dimensional market provides new ways for market participants to mitigate trucking rate risk, determine trucking rates/pricing and to procure trucking capacity or access load volume. The successful companies in this new market will be those that learn to engineer execution strategies via combined solutions from each of the three markets. Regardless of whether a market participant ever uses binding forward and/or trucking freight futures, it will need to stay current on the pricing trends in both the trucking forward and freight futures markets as spot market rates in their lanes will be affected by both. This new section was designed to help logistics professionals stay ahead of these new realities.

​Spot Market

Diesel Fuel - Spot & Futures Prices

Trucking Freight Futures

Logistics Management and Lakefront Futures’ Trucking & Derivatives Group started a new web series called The“A-Z” of trucking freight futures.

• Article 1: The Trucking Paradigm Shift & the New 3-Dimensional Market 
• Article 2: Trucking Freight Futures 101
• Article 3: Hedging Applications for Trucking Carriers, Shippers & 3PLs
• Article 4: Trucking Spot Market Vs. Freight Futures Market Pricing & Price Discovery
• Article 5: Trucking Freight Futures – Hedging Strategy, Position Sizing & Trade Execution
• Article 6: Trucking Freight Futures - Off-Exchange Block Trade Market Making
• Article 7: Hedging Fuel Prices Ahead of Increased Volatility