Spot-market Rate Indexes: Truckload Transportation Author: Advisor: Sponsor: Andrew Bignell Dr. Christopher Caplice Coyote Logistics
An index is a statistical measure of changes over time in a representative set of data points.
LIBOR Scandal: The importance of index design Used as benchmark for: $10 trillion in loans $350 trillion in derivatives Manipulated by several banks from 1998-2008 $2.6 billion in fines (so far) This dwarfs by orders of magnitude any financial scams in the history of the markets - Andrew Lo, Professor of Finance, MIT
U.S. Trucking Industry: The spot market is a small component 25.5 Private 229.5 40 268 LTL TL-contract (estimated) TL-spot (estimated) Spot: Price is negotiated at (or near) the time of delivery
U.S. Trucking Industry: Basic spot-market structure Shipper Shipper Shipper Shipper Shipper Shipper Shipper Shipper Broker Carrier Carrier Carrier Carrier Carrier Carrier Carrier Carrier
Motivation Changes in spot-market rates experienced at Coyote have not tracked existing truckload transportation indexes. Accurate spot-market indexes could be useful for: Long-term, flexible contracts Derivatives Procurement planning and decision-making Plan Review indexes from other industries to determine the characteristics of sound indexes. Review indexes from the trucking industry. Make recommendations for improving and/or developing spot-market truckload indexes.
Characteristics of sound freight indexes: Part 1: Index calculation and data collection 1. Should be an accurate reflection of the real spot market 2. Should be rigorously computed and unbiased 3. Should be expressed in units familiar to the industry 4. Should be based on a sufficiently broad and balanced input 5. Should be transparent and simple 6. Should provide different levels of aggregated information in a clear and calculable hierarchy
Characteristics of sound freight indexes: Part 1: Index calculation and data collection 1. Should be an accurate reflection of the real spot market 2. Should be rigorously computed and unbiased 3. Should be expressed in units familiar to the industry 4. Should be based on a sufficiently broad and balanced input 5. Should be transparent and simple 6. Should provide different levels of aggregated information in a clear and calculable hierarchy
Characteristics of sound freight indexes: Part 1: Index calculation and data collection Baltic Dry Index Weightings: 25% each Baltic Supramax Index Baltic Capesize Baltic Handysize Baltic Panamax Weightings: 2.5-20% Route rate #1 Route Rate #2 Route Rate #3 Route Rate #4 Route Rate #5 Route Rate #6 Route Rate #7 e.g. 52,000 dwt carrying grain from US gulf to Ned. Route Rate #8
Characteristics of sound freight indexes: Part 2: Index management 7. Should be published regularly and frequently 8. Should be audited and monitored by an independent body 9. Should have proper procedures for dealing with complaints 10. Should be low-cost 11. Should be supported by the major participants in the market 12. Should have procedures for updating and adjusting components or index structure as market conditions change
Line-haul rates (October 2010 = 100) Truckload Indexes Oct. 2010 Sept 2012 Stephens Freight Index 140 135 130 125 120 115 110 105 100 95 90
Line-haul rates (October 2010 = 100) Truckload Indexes Oct. 2010 Sept 2012 Cass Line-haul Rate Index Stephens Freight Index 140.0 135.0 130.0 125.0 120.0 115.0 110.0 105.0 100.0 95.0 90.0
Line-haul rates (October 2010 = 100) Truckload Indexes Oct. 2010 Sept 2012 Cass Line-haul Rate Index DAT Spot Van Rates Stephens Freight Index 140.0 135.0 130.0 125.0 120.0 115.0 110.0 105.0 100.0 95.0 90.0
Line-haul rates (October 2010 = 100) Truckload Indexes Oct. 2010 Sept 2012 Cass Line-haul Rate Index DAT Spot Van Rates Stephens Freight Index Coyote Logistics 140.0 135.0 130.0 125.0 120.0 115.0 110.0 105.0 100.0 95.0 90.0
Line-haul rates (October 2010 = 100) Truckload Indexes Oct. 2010 Sept 2012 DAT Spot Van Rates Coyote Logistics 140.00 135.00 130.00 125.00 120.00 115.00 110.00 105.00 100.00 95.00 90.00
Possible explanation: Geographic Distribution
Possible explanation: Tender Lead Time
Approach: Examine rate behavior in different geographies in the US. Corridor 1 origin region to 1 destination region 100-250 miles in diameter 8,400 corridors with volume 5.2% of corridors account for 50% of dollars spent Selected 10 corridors that represented high-volumes and various regions Examine the relationship between tender lead time and rates
3-Oct-10 3-Nov-10 3-Dec-10 3-Jan-11 3-Feb-11 3-Mar-11 3-Apr-11 3-May-11 3-Jun-11 3-Jul-11 3-Aug-11 3-Sep-11 3-Oct-11 3-Nov-11 3-Dec-11 3-Jan-12 3-Feb-12 3-Mar-12 3-Apr-12 3-May-12 3-Jun-12 3-Jul-12 3-Aug-12 3-Sep-12 Weekly average line-haul rate ($/mile) Average weekly rates - by corridor 3 2.5 2 1.5 1 0.5 Corridor 1 Corridor 2 Corridor 3 Corridor 4 Corridor 5 Corridor 6 Corridor 7 Corridor 8 Corridor 9 Corridor 10 0
3-Oct-10 3-Nov-10 3-Dec-10 3-Jan-11 3-Feb-11 3-Mar-11 3-Apr-11 3-May-11 3-Jun-11 3-Jul-11 3-Aug-11 3-Sep-11 3-Oct-11 3-Nov-11 3-Dec-11 3-Jan-12 3-Feb-12 3-Mar-12 3-Apr-12 3-May-12 3-Jun-12 3-Jul-12 3-Aug-12 3-Sep-12 Weekly average line-haul rate (lane average = 100) Rate stability - by corridor 300 250 200 150 Corridor 9 100 Corridor 4 50 0
3-Oct-10 3-Nov-10 3-Dec-10 3-Jan-11 3-Feb-11 3-Mar-11 3-Apr-11 3-May-11 3-Jun-11 3-Jul-11 3-Aug-11 3-Sep-11 3-Oct-11 3-Nov-11 3-Dec-11 3-Jan-12 3-Feb-12 3-Mar-12 3-Apr-12 3-May-12 3-Jun-12 3-Jul-12 3-Aug-12 3-Sep-12 Weekly average line-haul rate (lane average = 100) Seasonal patterns by corridor 300 250 200 150 Corridor 9 100 Corridor 10 50 0
Annual rate change - by corridor 15.00% 10.00% 5.00% 0.00% 1 2 3 4 5 6 7 8 9 10-5.00% -10.00%
Conclusion #1 To be useful, a spot market index should measure each corridor independently.
Relationship between lead time and rate High rate premium for same-day pick-ups Beyond 3 days, rates are stable
Impact of lead time by season During peak seasons, same-day loads had higher rate premiums than during slower seasons. 30% % difference between same-day and next-day rates 25% 20% 15% Peak Low 10% 5% 0% Corridor 6 Corridor 9 Corridor 2 Corridor 10 Corridor 5
Conclusion #2 To be useful, a spot market index should specify a lead time.
Ongoing challenges
Ongoing challenges
Key Findings Indexes should provide information at different levels of aggregation Corridors, regional, national, etc. DAT uses this approach An index of spot-market truckload transportation should specify a lead time No existing indexes do this Indexes can only provide partial understanding of rates Each transaction has a set of unique characteristics
individual experiences may vary
Thank you! Q & A