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FREIGHT FUTURES MARKET TO GET TESTED WITH FIRST MAJOR HURRICANE OF SEASON

| August 30, 2019

Dorian Expected to Spike Trucking Contract Rates, Exposing Shipper Profitability

K-Ratio, a risk-management firm for the trucking industry, is predicting that the Freight Futures Market, which opened in March of this year, could be tested as the east coast prepares for the first major hurricane of the season.  The Freight Futures Market was created to mitigate the financial risk associated with the volatility of trucking contract rates, which among other external factors, is strongly impacted by severe weather.

“Historical data clearly shows how drastically spot rates increase in the weeks around hurricanes, but proper risk management can eliminate the financial pain of higher transportation expenses,” said Kyle Lintner, Director of Markets for K-Ratio.  “Though we’ve had a relatively mild hurricane season thus far, Category 4 hurricanes can raise rates by as much as 40%, costing shippers millions of dollars and missed quarterly earnings projections.”

Hurricane Dorian is now expected to become a Category 4 storm that will make landfall in Florida on Labor Day weekend.  A quiet start to hurricane season (June thru November) can often presage more dangerous weather in late August and September.  In 2018 Hurricane Florence was downgraded from a Level 4 to Level 1 storm when it made landfall in North Carolina on September 14th.

“In 2018, had the Freight Futures Market been open, hedgers could have protected against a rise in rates due to Florence.  Long positions in the CHI-ATL lane would have eradicated a 25% increase resulting in more than $.50 per mile,” said Lintner. “Currently, we’ve already seen the freight futures market rally over 15% in the last two days and that trend should continue if the hurricane forecasts hold true.”

Trucking capacity typically tightens around Labor Day weekend and as more carriers move to preposition emergency supplies ahead of Hurricane Dorian, that capacity will further decrease, driving rates even higher.  Road closures and warehouse flooding will further exacerbate the market for weeks.

Category: Featured, General Update, News

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