A high level of market volatility for the fledgling trucking freight futures market, sparked by the tariff-fueled trade war, is forecast by K-Ratio, a risk management firm specializing in freight finance and logistics.
Factors such as the continued closure of small-to-mid-sized ground carriers, trade war uncertainty, seasonal employment and consumer confidence will all have an impact on how much and how quickly contract rates will change, K-Ratio said.
“This is the busiest time of year for freight and so any inconsistencies have the ability to drastically impact day-to-day prices,” Kyle Lintner, director of markets for K-Ratio, said. “Everyone is reacting to contrary indicators based on their needs and planning, which means the Freight Futures Market will become a compelling option for more businesses.”
The outlook for the holiday retail sector is for $1.1 trillion in seasonal sales, according to predictions form Deloitte and Alix Partners, an estimated 5 percent increase in year-over-year growth, K-Ratio noted. This level of volume could significantly disrupt supply chains, it said.
“Sophisticated carriers preparing to weather a recession will look to lock in relatively modest rates now before prices drop in the first half of next year,” Lintner said. “But shippers are going to try to protect themselves against prices on some lanes that are already rising. Last year, there was less uncertainty and yet rates on the LA-Dallas lane moved by 40 percent. I think we could easily see a 60 percent swing in the next few months.”
The Freight Futures Market was established in March, making this its first holiday season. It is meant to be a tool for shippers, carriers and third-party logistics (3PLs) firms to move their risk from business operation into the financial market to potentially protect them against freight rates that are prone to high volatility from external factors such as weather, construction and tariffs. The U.S. and China are already ensconced in a tariff confrontation and another conflict is set to ignite between the U.S. and the European Union.
Additional factors adding to the market volatility include high consumer confidence, though that’s tempered by apprehension about paying more than a 10 percent tax on imported goods and record unemployment rates that will make seasonal workforce pools smaller. On top of that, tariff sanctions have already re-routed some supply chains, but these haven’t yet been tested by the stress of the holiday season, K-Ratio said.
In reporting disappointing first-quarter results last month, Frederick W. Smith, FedEx Corp. chairman and CEO, said, “Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty.”
Smith said despite these challenges, FedEx is positioned to leverage growth opportunities, such as the integration of TNT Express and enhancing FedEx Ground residential delivery capabilities.
K-Ratio is the newest business in the K&L Freight Management portfolio that also includes air cargo, brokerage services and a proprietary truck fleet. K-Ratio provides solutions for shipper customers, carriers, and 3PLs by implementing aligned strategies to reduce the price volatility associated with the movement of freight over the road.