Sustainability & Tech
A Futures Market for the Trucking Industry: How TransRisk is Changing the Game
January 9, 2018
Craig Fuller is founder and CEO of TransRisk, a Tennessee-based startup that’s disrupting the transportation industry as it introduces a new way to manage risk and bring transparency to the trucking market. TransRisk is creating a regulated exchange for trading trucking futures, which will begin in 2018.
Fuller was a special guest at Breakthrough's 2017 Mercury Group event. He recently took some time to tell us the story behind his company and explain how this groundbreaking idea will benefit shippers and carriers.
I’ve been around the trucking industry my entire life. My father started U.S. Xpress, which is now the largest privately held trucking company in the country. My grandfather was one of the pioneers of the long-haul trucking industry, and my uncle has a large trucking company as well. So, I literally grew up in this space.
At a certain point, it became clear to me that there was very little transparency in terms of pricing, and the trucking market was extremely volatile.
As my career continued, I came across the Baltic Exchange, which had created a futures market based on maritime trade. I thought it was very interesting that you could create a financial market around spot rates and transportation. Examining how this worked in Europe gave me the idea for starting TransRisk.
TransRisk’s Three Foundational Concepts
1. News and Information Gathering
First, we have a news service that provides content and real-time analytics through our FreightWaves platform. Any time there’s a mature financial market built around commodities, a whole set of newswire services emerge to provide up-to-date market information keeping key players informed of changes in the marketplace.
With FreightWaves, we’re able to collect that information and talk about things that move the needle in the freight market, whether it’s regulatory, technological, or economic activity. All those things impact price and the overall freight market.
Information is power. Knowing what’s happening in the trucking market and why prices are moving is very important for anyone who is managing costs. The fundamental data that TransRisk provides shippers gives them clarity and transparency in terms of what’s happening in the market, why it’s happening, and where it’s heading next.
2. Aggregation of Reliable Data
We also aggregate data from trustworthy sources in the trucking landscape to understand what’s happening in the market in near-time. For example, TransRisk works with Breakthrough to understand how fuel impacts spot pricing. Knowing what’s going on in the fuel market indicates what’s happening in the broader trucking market. Another crucial TransRisk partner is DAT, the largest and most-comprehensive trucking load board. They’ve created an index based on trucking spot rates, which is published daily, and contracts settle against the index.
Many other services that track and post rates are using lagging indicators. They can trail the market by as much as two weeks. What we’re trying to do is provide more real-time information on supply and demand in the trucking industry.
3. An Innovative Transportation Futures Market
Finally, what we’re ultimately building is a futures market. We’re actually listing financial contracts on a global financial exchange, which allows investors, speculators, and hedgers to trade those contracts based on U.S. trucking spot rates.
That’s the more strategic aspect of what we’re doing for shippers and carriers, mitigating risk and volatility while giving organizations the ability to control costs.
How TransRisk Trading Works
A shipper is always hoping that prices in the trucking market go down, and carriers may benefit when prices go up. Hedging allows shippers and carriers to trade opposite of where they’d want to be naturally exposed.
With a hedge, you can control the upward movement of the market because you’re taking the long position so that if prices go up, you’re offsetting the increase in prices. As a shipper loses money because of price changes in the physical market, it actually gains in the TransRisk futures market. Essentially, you’re able to create a degree of insurance against rising prices as a shipper or balance falling prices if you’re a carrier.
It’s like any other hedge and it’s no different than commodities such as corn or steel in the sense that you’re trying to control fluctuations in prices. Except in this case, the commodity is trucking prices. There are no physical trucks that show up in our market. There’s no physical delivery of vehicles or freight. It’s all based on prices and price management.
It works in much the same way as Breakthrough’s services. Breakthrough isn’t providing fuel delivery, it’s providing transparency and risk mitigation as a product offering.
What’s really exciting about what Breakthrough has done over the last decade is they’ve made fuel prices transparent to shippers and as a result they’re mitigating a lot of the risk in fuel management. TransRisk has studied all of that, and we look at the success of the Breakthrough® model as an indication that the same kind of go-to-market strategy will help remove volatility from trucking spot prices.
Adding Transparency. Addressing Volatility. Managing Risk.
Prices are set strictly on negotiation in truck brokerage today. There is very little market transparency. Shippers and carriers are unsure whether they’re getting a fair price.
Nobody minds paying a higher market price if it’s fair and accurate. A shipper won’t begrudge a carrier for charging more in the aftermath of a hurricane. What shippers get frustrated with is the lack of transparency and ways to manage that risk. Even in a relationship with a broker, there’s no way to be certain your broker is getting a fair market price, or that there aren’t potential kickbacks involved.
It’s difficult for a shipper to achieve transparent transportation pricing today because the market constructs simply aren’t there. When TransRisk creates a tradeable contract based on spot prices, then we’ll start to see the development of index-linked products, which means a shipper will pay fair market value. It’s removing the inconsistent human element from the equation and focusing on data.
I think we’re going to see an evolution of the freight brokerage industry where brokers will no longer be in the price negotiation business, they’ll be in the service delivery business. When the conversations around spot market pricing go away you won’t have to negotiate transactions because it’s all linked to an index. We’ve reached a point where technology allows for real- or near-time price discovery that offers more accuracy and honesty.
TransRisk is based on a proven model and it’s set to revolutionize the trucking industry. We believe rail and container transportation can also support a vibrant derivatives market. Volatility from weather, natural disasters, seasonality, labor issues, regulatory changes, fuel prices, and other factors no longer need to be a concern. Shippers, carriers, and brokers all face the same challenges, and we’re excited to introduce a solution to help everyone in transportation manage risk.
At Breakthrough, we’re focused on continually providing innovative solutions to our clients. That’s one reason why we’ve invested in TransRisk and are partnering with their efforts. For more information on becoming a TransRisk member, contact Michael Vincent at firstname.lastname@example.org or visit their website.
If you’d like to find out more about how Breakthrough has established a system of fairness and transparency for shippers and carriers, check out our Solutions page, or contact us today to discover how we can help your organization stop reacting to fuel costs and start managing them.