Application and Strategy in Futures Markets for Shippers
How Shippers can Benefit from Trucking Freight Futures
Straightforward and naturally more direct, Shippers are the market participant with the most tangible benefit to be seen in Freight Futures.
Transportation expenses are estimated at 5-14% of the cost of goods sold. A Shipper with higher transportation costs will have a product with a higher sticker price, which translates directly into lower profits. Limiting risk exposure to increasing price pressures by hedging with futures gives the Shipper protection from possible losses and decreased profitability. This provides greater transparency and accuracy in forward looking expense estimates, and gives the Shipper who hedges a leg up on the competition.
Obviously, futures trading is a complex undertaking, however, taken at face value and even at its most elementary application, costs for a Shipper are stabilized and fixed for the duration of the hedge. Whether buying 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 paid for that good or service is fixed, known, and secured.
Operational expenses are offset with symmetrical gains or losses in the futures market, eliminating volatility and uncertainty from a company’s bottom line. A Shipper long the appropriate contracts can properly budget their future business knowing their freight costs are determined and stable.
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 costs.