TransRisk, Nodal Exchange, and DAT team up for trucking freight futures exchange

A trio of forward-thinking transportation concerns–TransRisk Inc., a provider of data intelligence and financial products serving the freight sector, Nodal Exchange LLC, a regulated derivatives exchange that offers more than 1,000 electric power and natural gas contracts on hundreds of unique locations allowing market participants to hedge against price risks in the United States, and DAT Solutions, recently announced they have partnered up on a first of its kind initiative in the form of an exchange focused on trucking freight futures and options on futures contracts.

The trio said that the contracts, which are subject to regulatory approval, are expected to be listed for trading on Nodal Exchange in late 2018 and will be financially settled using DAT’s Truckload Rate Index, which is based on its data for major U.S. freight lanes. DAT’s data stems from its on-demand freight exchange, which was comprised of 100 million loads and trucks posted in 2016 and $33 billion worth of spot and contract lane pricing from actual freight transactions

The impetus for this offering stems from the volatility in line haul freight rates that can see spot rates trend up by 40% in a week on certain lanes. And this volatility can be spurred on my myriad factors, including weather, seasonality, regulations and economic factors and conditions, too.

In an interview with LM earlier this year, TransRisk CEO Craig Fuller explained that the main objective of the Trucking Freight Futures Exchange is to provide what he called a risk management tool and to essentially “de-risk” trucking for anyone with any type of exposure to trucking market rates.

This is done, he said, by helping to mitigate the volatility that exists in the market for organizations that are exposed to market rates like brokers, 3PLs, and shippers

“They are all exposed to fluctuations in the market place,” said Fuller. “Right now, they don’t have a way to protect themselves against that volatility, and we are trying to help mitigate spot market pricing. Most shippers in the spot market will say they are ten-to-15 percent efficient on the spot market, and it is that portion of the spot market we are trying to address.”

Among the causes for the market volatility are weather, fuel prices, highway congestion, seasonality, regulations, and macroeconomics, with spot prices sometimes shifting by as much as 40 percent in a week.

With the intention of building its own marketplace, Fuller said this week that the exchange essentially leverages capacity and brokerage listings available through things like load boards to take advantage of all the information they provide it to a broader financial market on its own exchange.

“We still subscribe to the core mission to ‘de-risk’ the business,” said Fuller. “This is done through trading these contracts and hedging the exposure and also to get information on where the market is headed…and to better understand the market. What we are trying to do is provide a product that helps trucking companies, shippers, and brokers show more consistent cash works.”

With so many parties focused on the digitization of trucking, which has been seeing steady flow of capital, Fuller said the issue with that from his perspective is that there are thousands of brokers and carriers out there, which makes it difficult to create a significant enough interest in a business in order to build something that is highly scalable.

And that is what makes the opportunity for TransRisk different, in that it does not have to touch the physical transaction, he added.

“All we have to do is provide an in-depth confirmation contract that people can trade and have consistent cash flows,” he said. “What has happened is that markets have evolved over time to trade products people can use to optimize their business.  This results in faster price discovery and faster execution once you have the viable infrastructure.”