Friday, March 29, 2019

Logistics: Trucking Freight Futures Began Trading Today

First up, one of the co-sponsors of the product FreightWaves has a 'spin-y' sort of headline for something that really shouldn't require much spin:
First trade executed within 20 minutes of Trucking Freight Futures launch
FreightWaves, in partnership with Nodal Exchange and DAT, launched the world’s first financially settled Trucking Freight Futures contracts at 9 a.m. Friday, March 29. The first trade came through within 20 minutes of opening, at 9:18 a.m.

The first trade executed was on the U.S. National van lane for April 2019. The trade was executed at $1.340, according to FreightWaves Vice President of Futures Markets Tom Mallon.

The current DAT spot rate national average (DATVF.VNU) is at $1.32, so the futures trade implies that the market believes spot prices will remain stable and edge up slightly next month.
“This is a historic day,” Mallon said. “The first ever Trucking Freight Futures trade shows that there is a market and a need for this.”

Seven origin/destination lane contracts launched, along with four regional or national average contracts. Trucking Freight Futures will be settled against DAT dry van spot rates.
Origin/Destination Lanes:
Los Angeles to Seattle
Seattle to Los Angeles
Los Angeles to Dallas
Dallas to Los Angeles
Chicago to Atlanta
Atlanta to Philadelphia
Philadelphia to Chicago

Regional/National Averages:

West U.S. (Los Angeles to Seattle Van and Seattle to Los Angeles)
South U.S. (Los Angeles to Dallas and Dallas to Los Angeles)
East U.S. Van (Chicago to Atlanta and Atlanta to Philadelphia and Philadelphia to Chicago)
National U.S. (West U.S. and South U.S. and East U.S.)...MORE
Granted it is not easy introducing new futures. As noted in the intro to Feb. 20's "Trucking Freight Futures: Former JP Morgan Marketeer to Head Up FreightWaves Part of the Effort"
Now where were we?
Encourage Poland to invade Germany. posted
Remind Pope of his mortality. posted
Ahhh, freight futures.

The rollout of new financial products is tricky if not downright risky and for this reason derivatives are usually introduced after a considerable run-up in the underlying has generated interest and buzz.
A recent success story was bitcoin futures.

On the other hand the CME's milk futures never really caught on despite (because of?) the opportunity for cow puns when describing them. The expiring February's have traded 184 contracts today while the March's have seen a total of 144 change hands. Not very liquid.

I am so sorry....
See for example the CBOE's announcement that after eighteen months of trading their Bitcoin futures will be no more after the June settlement.

And yesterday's Wall Street Journal story on the introduction:
Will Truckers Trade Futures? A New Market Seeks to Draw Freight Bets
Recent volatility in freight costs bolsters the case for the contracts, but getting firms on board is likely to be an uphill battle  
The first futures tied to the cost of trucking goods across the U.S. are set to launch on Friday, testing whether an old-school industry will embrace a new financial tool designed to protect cargo haulers and shippers against swings in freight rates.

Nodal Exchange, a unit of German exchange giant Deutsche Börse AG, plans to debut 11 new futures contracts linked to trucking costs. Futures allow firms to bet on whether the price of an asset will rise or fall, or to hedge against unfavorable price moves. There is an established market for futures-like contracts on ocean freight rates, but Nodal's trucking futures will be the first of their kind, their creators say.

It is far from certain that trucking futures will take off. Most new futures never gain traction, and the history of exchanges is littered with failed attempts to introduce futures on markets like shrimp or Canadian silver coins.

About $6.4 billion worth of seaborne freight contracts changed hands last year on Singapore Exchange, the largest operator in that market. That is a small slice of the trillions of dollars that trade annually on futures exchanges world-wide.

Still, Nodal and its partners say they're cautiously optimistic. "We think it's going to start very small and build over time," said Craig Fuller, chief executive of trucking data and news provider FreightWaves, which worked with Nodal and DAT Solutions, an online freight marketplace, to develop the new contracts.

Recent volatility in trucking rates has bolstered the case for hedging freight costs. Average national trucking costs hit a record $2.32 per mile in June 2018, up 29% from a year earlier, according to DAT. Since then the market has cooled, with costs averaging $1.87 per mile so far this month.
The 2018 run-up squeezed profits at corporations like Hershey Co. and Procter & Gamble Co. It was fueled by a booming economy and new government rules mandating the use of electronic logging devices, which effectively cut truck drivers' availability by forcing them to adhere more strictly to timekeeping rules.
One potential problem for Nodal's futures is that they will apply only to a narrow slice of U.S. trucking transactions. They will track prices in the "spot" market, in which truckers and shippers enter hauling agreements to be executed over the next week or so. By various estimates, spot deals account for 15% to 30% of the U.S. trucking business. The rest is tied up in longer-term contracts, in which firms lock in freight costs for months in advance....MUCH MORE
If interested see also February 18's "Freight Futures For the Trucking Industry".