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Just in case you have been living under a rock for the past week, here is a quick synopsis of what went down on Wall Street. GameStop, a company composed of brick and mortar stores across the country, is in a death spiral similar to the one that Blockbuster traveled on its way to extinction. Many hedge funds on Wall Street saw this and so they shorted the stock, which in layman’s terms means that they bet that the GameStop ship is going down. Then came along a group of regular people, or retail investors, organized on a Reddit thread to game the system through a trading app called Robinhood. They banded together, and bought shares of the almost worthless company, driving up the price of the stock and pushing the hedge funds into a position where they lost those seemingly surefire bets. The hedge funds lost billions, and some nearly went under.
The aftermath has exposed the hypocrisy of the whole system. The hedge funds have ways of gaming the system in their favor so that their investments are nearly risk-free. For example, trades that are made through the Robinhood app are executed by hedge funds like Citadel. The benefit to the hedge funds is that they can pick up on trends and ensure that their money is ahead of any of those trends. This hasn’t been proven, but is widely suspected. And historically, big money has been able to stay in the know with information, allowing them to control the narrative. Without going into all the details, the Reddit group banded together to use the same gaming tactics to turn the tables in their favor. The outcome was that the Robinhood app eventually stopped trades on GameStop for a period of time, which offered some relief to the hurting hedge funds. They flipped the narrative.
And now we are left pondering numerous questions. What is “right” here? What is “wrong?” Should there be regulations to prevent this from happening again? And if so, what would those regulations look like? And the bigger question that looms over all, should hedge funds be given privileges and priorities over regular retail investors?
One thing is certain. In the same way a partner learns his/her spouse of 15 years has been cheating for the last decade, this whole debacle has brought some ugly truths about how Wall Street has operated to the surface. Deep down a lot of people have suspected such tactics being used, but now the dirty laundry is out in the open.
Here is a question for all of us in the logistics industry. Do the same ugly truths exist in logistics? Are some players in the market gaming the system in ways that rid them of almost all risks and guarantee a profit? If so, how are they doing it? And is that okay? And if not, what can be done? How can the logistics industry become healthier overall?
My suspicion is that the same ugly truths do exist in logistics. And while I can’t point to a fire, I can say that there is a lot of smoke. The trucking market is volatile. Very volatile. And that volatility can create an environment for some players to game the system. What I mean by that, is to manipulate the narrative to fit their agenda. This could be a broker lying about a lane being very tight and needing to charge a high freight rate when the market is loose and loosening further. Another example is a carrier that pushes rate increases on shippers when the market doesn’t support that action, and vice versa, when large shippers push rate decreases on carriers when the market doesn’t support that action. Some may argue that this is all part of the game and part of the competition and that those that play the game the best are the ones that are successful. And there is some legitimacy to two sides disagreeing on what is fair. What I’m referring to here is not that. I’m referring to predatory, egregious behavior when one party recognizes that they have an upper hand, and taking advantage of another.
As a former baseball player and someone who is keenly familiar with high levels of competition, I would argue that the highest levels of competition need objectivity. Let me explain. The reason that so many ugly truths exist is because of a lack of objectivity. Historically, when the market has been tight, it’s similar to two baseball teams playing a game in which the carrier team’s coaches are the umpires. There is bias; it’s not a fair competition. These “umpires” are claiming to be objective, but everyone can see whose side they are on. And when the market loosens, the shipper team’s coaches are the umpires. Again, not exactly fair. And there can be games played with Team Broker, but still, if the coaches are calling balls and strikes, it doesn’t make for good competition. Professional and objective umpires are needed. Will they be perfect? No, but they will create the environment for a higher level of competition.
So what does that look like in the market today? Objective market data available in platforms such as SONAR. Visibility. Transparency. If all of the players in the market, big and small, have objective visibility into freight market conditions, then the blind spots that allow for bad acting and ugly truths are greatly reduced. More informed negotiations can occur, which leads to healthier business relationships overall. Objective data prevents any one party from controlling the narrative.
Wall Street may need more intervention in the manner of government regulation to prevent players of all sizes from gaming the system. However, I believe that clear visibility into real-time freight market conditions can protect shippers, carriers and brokers from falling victim to being gamed by bad actors that happen to be more informed. This will greatly decrease players in the logistics industry from gaming the system in nefarious ways.
With the most comprehensive freight data and analysis in history, most of which is updating every 24 hours, SONAR has the data, tools and potential to provide objectivity to the logistics market as a whole, offering users much-needed protection.
To summarize, the SONAR team is here to make the industry, and the world, a little bit better than it was before.