Trucking Freight Exchange takes shape through partnership between TransVix and DAT

When one thinks of the esoteric subject of futures exchanges, the first thing that comes to mind often is stocks or a specific type of commodity. But it now appears that may be shifting into freight transportation, in the form of a Trucking Futures Exchange, based on a strategic alliance announced today between Chattanooga, Tenn.-based TransVix LLC, and Portland, Ore.-based DAT Solutions.

Driving this alliance is what the companies described as a first of its kind concept that, at its core, will address trucking rate volatility by listing and trading contracts that are based on trucking line haul rates, with the contracts that are financially settled through DAT’s major U.S. freight lane data.

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. And TransVix is committed to addressing truckload rate volatility, which it said will offer up a new way for industry stakeholders to hedge trucking rate volatility exposure.

TransVix is led by CEO Craig Fuller, former founder of Xpress Direct, the surge capacity/on-demand provider of US Xpress; and Transfund$/TransCard, a fleet card provider that provided long-haul trucking companies with fuel card payment services that was sold to US Bank.

In an interview with LM, Fuller said the main objective for TransVix and its Trucking 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.

“Our goal is to help mitigate the volatility that exists in the market for organizations that are exposed to market rates like brokers, 3PLs, and shippers,” he said. “They are all exposed to fluctuations in the market place. 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, TransVix noted.

With the Trucking Futures Exchange, Fuller said the company is trying to create an offering that allows brokers, 3PLs, and shippers to offset that risk and get out of that exposure to fluctuating market conditions. The Trucking Futures Exchange is expected to go live around the third quarter of this year, with Fuller anticipating having some contracts traded this summer. In the meantime, he said it is going through a regulatory vetting process, as per the Commodity Futures Trading Commission. When the Trucking Futures Exchange goes live, it will eventually be comprised of 12 lanes in major corridors.

When kicking the tires on launching TransVix, Fuller pointed to his previous post Xpress Direct, which sold airport-to-airport linehaul services, with many customers being airfreight forwarders. He said there was a lot of price elasticity with airfreight forwarders selling truckload services at a much higher margin than what a typical truckload carrier would get.

“That showed us that airfreight forwarders were able to get very high margins due to things like inventory stock outs or surges in business,” he said. “What we learned in that business is that when the supply chain gets very tight customers are willing to pay [higher rates] to move product off of their docks. The delta between what they would normally pay and did pay in those situations is larger, and the reason they do that is to ensure their supply chains are liquid and efficient. We saw that there is a lot of instability in pricing, and most trucking companies assume that price is kind of fixed through the year and fluid. But there really was not a lot of transparency into that, as there are surges and fluctuations in the market.”

As for how the Trucking Futures Exchange works, Fuller said that it leverages the DAT data for truckload, spot, and contract pricing and volumes on both a historical, day-to-day and hourly basis to see where volatility is in the market, while stripping out the contract data, which is less volatile and does not really move as fast as the far more volatile spot market.

“It looks at historical data for things like origin-to-destination pairs for major corridors, and these are the lanes that are traded, and when you are trading these lanes you are basically trading contracts for the futures of those prices essentially,” explained Fuller. “You are trading to offset the risks in certain markets and corridors. “It is a way for a shippers, carrier, or broker to insure that regardless of what they pay for physically, they are covered in the financial market so it is a way of insuring risk against where you would actually buy or sell.”

And he added that margins, in many cases, are built around the ability to get a higher yield in the spot market, with the fluctuations that happen in the spot market directly correlating to margins. While contract rates are viewed as the ones that keep carriers in business, Fuller said the “real bread” around margins can be based on how well their spot market business is managed in terms of how much margin can be generated per transaction.

"We have observed supply and demand fluctuations and periods of significant truckload capacity constraint over a period of years, and recognize the financial risk that our customers face,” said Don Thornton, senior vice president of sales & marketing at DAT, in a statement. “We are impressed with the TransVix team, their depth of experience and knowledge of the trucking marketplace and capital markets. Together we are looking forward to building a supplemental capability for transportation professionals to manage rate volatility risk with no interruption to the way they do business today.”