The Future of Trucking....Freight Futures?

Good Evening and Happy Master’s Week! As I write this weeks’ entry, I’m sipping on a Normal Pils which is (you guessed it) a Pilsner brewed by Destihl Brewery in Bloomington/Normal, IL. I grew up in that area of Illinois and have seen Destihl’s beers since I was of age to consume their different beverages. I also spent many an evening at their restaurant and brew pub in Champaign, IL where I lived for some time.  I’ve had friends comment that they’ve found Destihl’s beers in restaurants and bars as far as California! It amazes me a little mid-west brewery could enter a market as far away and as complex as California’s, but I’m sure the market barriers of entry into California aren’t that difficult; one probably only needs to ensure the can/bottle has been recycled, the water to make it was not stolen from fish, the truck that got it to the store was only ran by renewable electricity, the lab the beverage recipe was produced in never employed rodents, no Hollywood actors were offended during the beer production, etc. (Only Kidding).  My wife thought it appropriate to pick up a 6 pack at their amazing new brewery/tasting room on our way back from Chicago for a wedding last weekend. I am glad she did as she is out of town this weekend and it’s just myself and Hank and Harry. I will enjoy the Normal Pils and they will enjoy their normal biscuits! Here is a picture of Hank and Harry and my Normal Pils.

Hank+Harry+Beer.jpg

Hank and Harry Like Beer Too!

No Beer for Corgis!

 

Anyway, I usually really like pilsners but I find they require a good pilsner glass to really allow for the full experience. Out of a can I think they taste pretty flat. I also am a big supporter of avoiding a can when drinking beer unless you are consuming something at the same level (or below) of Bud Light. This beer is good but out of the can it produces a frothy foam with no real underlying carbonation. It also is a little cloudy when my experience with pilsners is usually they are much clearer and refreshing. I would recommend this to someone who doesn’t like champagne but prefers a dry wine. You’re getting some interesting flavors, somewhat grassy, but it hits you immediately and there isn’t much “sparkle” like a typical lager. I’m no beer snob so I find it very drinkable, but I would probably prefer some other pilsners that I’ve had before I went searching for this one. 

Now that I’ve mentioned the important stuff, today I wanted to talk about the new Truckload Freight Futures market that was recently opened a couple of weeks ago. To be very honest, aside from the basic finance classes I received when getting my MBA a few years back, I’ve really not delved into the whole “futures market” thing and how it effects participants, the market, and possibly myself. I figured many others who’ve heard the news are probably experiencing the same confusion. Or, like they say in Normal, Illinois, CORNfusion!

Recently, I did some research to try and figure out what the freight futures markets means for me. To put it simply, futures are contracts for goods/services bought and sold before they are actually ready to be consumed. Futures of agriculture commodities, oil, energy, and even ocean transportation are traded on future markets. My buddy, Joe, is an economist who currently resides in the Normal, IL area (3rd mention of Normal, IL…what??) and once suggested we start a Beer futures market, but he eventually assumed the market couldn’t handle the volatility based on what our weekend plans were! Of course, that was years ago, and Joe is a successful economist with other things on his mind now, so what does he really know? You know what they say about economists- They assume everything…except responsibility! 

Anyway, Freight Waves, DAT, and exchange “Nodal” partnered up to create a new freight futures market. Futures provide a way for participants in the industry being traded (and outsiders) to hedge their business by purchasing contracts that agree on a price for a particular transaction in the future, and that transaction’s price can go up or down before the contract expires. Within the market, there is theoretically a “buyer” and a “seller” of the contract. The seller (let’s say a trucking company) offers a trucking lane at a certain rate to be sold at a certain time. A buyer could see the rate and think that it is fairly attractive for that time of the year. The buyer could buy the contract with a set expiration date, and if the price of that lane goes up (per DAT’s freight index), they could sell the contract for the new price and make a profit.

On the other hand, trucking companies could sell the contract at a guaranteed price in a time when the market might be volatile. Let’s say JB HUNT sold a contract that was from Chicago to Atlanta for $1.66/mile on April 22nd.  If, on April 20th, a severe storm in Northern Illinois causes capacity constraints, and rates sky rocket to $1.80/mile, JB HUNT just saved themselves some $ while also maintaining a level of cost predictability.

With all this in mind, futures came about with the idea that there is an underlying asset for sale. For the case of freight futures, I am not sure who is backing that asset or how it could be “Delivered”. There are stories of retail investors securing livestock contracts and letting them expire as the buyer, resulting in a truckload of hogs being delivered to their office. I am not sure what would happen if an investor did the same with a truckload lane. I’d prefer not to have a JB HUNT driver showing up at my house for his next load trying to park his rig behind my neighbor’s mini van! You know what you get when a JB HUNT truck leaves a truck stop?- 2 parking spaces! Just kidding, just kidding!!- I’ve heard that joke referring to just about every major trucking line. I used to work for JB HUNT so I thought I would yank a few chains.

All in all, a futures market for trucking is supposed to allow for some stability in the market with less rate fluctuation. If the market is allowed to predict price levels, it should, theoretically, be less reactive to events that could cause significant volatility. If you are interested in seeing the current rates based on the DAT index, they can be found here: https://www.dat.com/industry-trends/trucking-freight-futures/ .

I’m off to watch some more of the Master’s! Until next time, Cheers!

 

Featured Beer: www.destihl.com