The first futures market for trucking freight will open on March 29.
Companies like Kellogg’s, Amazon, ExxonMobil, and more aren’t able to reliably understand the long-term costs for transportation, but a trucking futures market could help that.
Due to the volatile price of trucking costs, companies like General Mills and Procter & Gamble had to unexpectedly raise prices in 2018.
Craig Fuller, CEO of FreightWaves, is used to people telling him that trucking is an obscure industry — even though it moves 71% of the country’s goods.
His response to that is to point out how trucking compares to, say, the energy industry. Trucking transportation services are a $726 billion market, while petroleum refining total $501 billion in the US.
And trucking is about to catch up to energy in one significant way. On March 29, the country’s first trucking freight futures market will sound its opening bell. That means the tens of thousands of firms who use trucks to move their goods will be able to better forecast what transport costs will total as far as 16 months ahead; transportation costs represent some 8% of US GDP.
“People always think about energy prices as creating inflation in the market,” Fuller told Business Insider. “Trucking and transportation is actually a bigger cost.”
The freight futures market will be in Chattanooga, Tennessee. It’s in partnership with FreightWaves, DAT, and Nodal Exchange.
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Trucking is a massive industry that touches many parts of consumers’ lives. According to Fuller, there are more than 4,500 trucking companies that bring in more than $20 million in revenue annually.
And there are 20,000 shippers who spend more than $10 million on trucking costs every year. Everyone ranging from Kellogg’s to Amazon to ExxonMobil needs to forecast their transportation costs.
Not only is trucking huge, it’s also incredibly volatile. Rates last year jumped so much that major companies had to jack up the prices of their goods just to keep up. According to FreightWaves, 40% of Fortune 500 companies reported in late 2017 and in 2018 that transportation costs were harming their bottom lines.
Fuller described 2018 as the trucking industry’s “OPEC moment” — when an entire industry realized just how volatile conditions, pricing, capacity, and labor issues can get. A futures market might be able to help transportation companies, and everyone who depends on trucking to move goods, ensure prices will remain stable.
“Once you add visibility and transparency to it with a futures contract, what will happen is that the delta between the high number and the low number will actually come down,” Fuller said. “What you end up doing is you mitigate your volatility.”
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Source:: Business Insider