Application and Strategy in Futures Markets for Carriers
How Carriers Can Use Trucking Freight Futures
Though not an expense but rather a revenue, rate per mile is equally important to a Carrier as it is to a Shipper. Inside of the futures market, the Carrier maintains the same level of benefits as does the Shipper, but instead of stabilizing costs, the gain comes in the form of fixed revenues not subject to the volatile price swings associated with over the road freight.
Carriers applying futures hedges have the ability to lock in rates for their fleet, as well as provide accurate revenue forecasts, both of which allow for proper budgeting, planning, and expansion of business operations.
Obviously, futures trading is a complex undertaking, however, taken at face value and even at its most elementary application, revenues for a Carrier are stabilized and fixed for the duration of the hedge. Whether selling 5,000 bushels of Soft Red Winter Wheat at the CBOT, 1,000 barrels of West Texas Intermediate Crude Oil at the NYMEX, or 1,000 miles of LAX-DAL Dry Van at the Nodal Exchange, the price received for that good or service is fixed, known, and secured.
A Carrier can offset their underlying operational revenues with symmetrical gains or losses in the futures market, eliminating volatility and uncertainty from a company’s bottom line. Implementation of the correct course of action inside of the futures market gives the Carrier the competitive advantage of moving forward with precise revenue guidance, and the realization of those revenues, regardless of uncontrollable market price movement.
Simply stated, a Carrier will know what price their trucks will run at, and will receive those rates irrespective of market conditions, dynamics, or counterparties.
Nodal Exchange will list seven of the most highly trafficked lanes, as well as three regional averages and one national aggregate.
K-Ratio can assist Shippers in identifying and applying precise correlational strategies between each company’s specific shipment lanes and the exchange traded products, ensuring accurate risk mitigation methods that reduce the volatility associated with freight revenues.