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Introducing The Newest Futures Product: Trucking Freight Futures

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Introducing The Newest Futures Product: Trucking Freight Futures

Benzinga's Fintech Focus Podcast features conversations with the biggest names in fintech. Subscribe to the Fintech Focus newsletter to get a roundup of industry news delivered to your inbox weekly, and check out upcoming programming at Benzinga events.
  
In this episode of the Fintech Focus podcast, we’re hitting the road with Craig Fuller, CEO of Freightwaves. As of today, Freightwaves has officially launched Trucking Freight Futures, a futures product for the $726 billion freight industry. 
 
Why does freight need a futures product? Who is it for? How does one even go about creating a new futures market, and what even makes it successful? Craig has the answers. 
 
Listen to the podcast below to hear why Fuller and co. wanted to bring this idea—which has been years in the making— to life.

Interview Highlights

When people hear the word “freight,” they may understand that it has to do with trucking, but maybe not much more. Could you explain exactly what Freightwaves, or what Freight Futures are?
Most people don't think of trucking as a commodity. But if you're in the space, if you're in transportation services and trucking particularly, it is a $760-billion industry. And, basically, the decisions on how people buy trucking services are very very price-dependent. And, so, there's certainly characteristics around service that sort of play into it.

Predominantly, most of the decisions of the business are made on price. And yet, there's a ton volatility in prices. In a given week, you can have a market in the physical market move four to six percent over the course of a year. Actually, since just December, trucking rates and certain lanes have dropped by 40 percent. So, we're talking two months and you've had 40 percent movement in price which is a significant amount of exposure.

The trucking companies are obviously exposed to price movement. They want prices, they're on the market, they want prices to go up indefinitely. And people that are buying shipping services like Amazon.com, Inc. (NASDAQ: AMZN), Proctor & Gamble Co (NYSE: PG), and Home Depot (NYSE: HD), they want prices to go down. They want to pay less for transportation services. So, there is always this sort of struggle in the market of prices going up or down because of the fact that it is a commodity.

Where you guys have this idea, “We need a future's product to help us manage risks”. What do you do then?

We did a lot of work to understand what it takes to execute and build a futures contract or market. We visited with exchanges all over the world. We visited with people that were in Maritime. So, maritime bulk shipping has futures contracts, so people know of the Baltic Exchange or the Baltic Dry Index, which is an index that assesses the price of shipping global bulk commodities. And we studied that market. We studied the housing market, we studied the power market.

We also drew an analysis on what it would take to create a successful criterion. So, one of the things we look at was, "does it make sense to build our own exchange?" Well, what we determined is the value of futures is less about where it's listed, the exchange itself, and more to do with does the market really believe this, does this manage risk for them. Does it manage price risk for them? And is the market big enough to be liquid and is volatile? And is the index itself trusted? The people had trust in it. So, we focused all our energy around commercialization, and I would say evangelism. To teach and educate.

 

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