Freight and logistics is a $5 trillion global industry and a staple of our market economy. Delivered goods and cargo equals operational excellence. But fluctuating prices for freight can wreak havoc on the budgets of shippers, not to mention the carriers who depend upon them for their revenues. From liquid shipper operators to liquid carriers that depend on freight to finance their operations, the number and range of people who are effected by freight and transportation costs or businesses whose sales and profits are impacted by the price of freight and transportation are enormous.
Given the size of the freight and transportation industry and its impact on our economy, it is astonishing how little was done in the past to manage this price risk. Some large companies could use gasoline futures to manage fuel cost, but this was and remains an inflexible solution, carrying substantial risk for transportation companies and does not correlate to their revenue exposures. Typical consumers also could not lock in costs as fuel is variable and it only part of the cost of a vehicle. Few solutions were available to shield companies from the normal quarter-to-quarter price fluctuations in the price of a freight between two transportation hubs, or, for that matter, in fluctuating costs at the pump. Yet these fluctuating prices had a direct impact on corporate profits, both for freight and logistic capacity buyers and sellers.
Today, all this has changed, LiquidsX has created a new breed of financial and physical risk management tools and structures that can be used to immunize companies against a wide range of freight and transportation risks and help them achieve a broad cross-section of financial goals. Already, companies in industries as diverse as energy, refiners, manufacturing, traders and merchants are using these freight and transportation risk management tools to:
• Smooth revenues (compensate for loss of demand)
• Become a technology platform provider
• Cover excess costs
• Hedge fluctuations in logistics budgets
• Reimburse “lost opportunity” costs
• Lock in logistics prices
• Diversify investment portfolios
• Freight Subscriptions (to lock in savings)
By using freight and transportation price risk management tools to complement existing risk management strategies, shippers can lock in their cost or swap out freight capacity if they no longer need the capacity or need a different time and companies can better manage their sales and earnings. This, in turn, can help them reduce their cost of capital, and, ultimately, attract a wider range of investors.
Finally, the burden of dealing with unpredictable transportation prices has become an opportunity.