Wednesday, April 21, 2010

US Truck And Shipping Companies Welcome Wall Street Bill

Interested Parties Praise Proposed Derivatives Legislation
Shipping News Feature

US – This week has seen a suspicious eye cast on Goldman Sachs as details of yet more underhand dealings in the world of banking emerge and accusations of the deliberate mis-selling of bad investments are bandied about. Now, with derivatives fraud at centre stage, a new bill by the Arkansas Democrat Senate Agriculture Committee Chairwoman Blanche Lincoln, has been praised by trucking and shipping interests.

The scope of the bill, 'The Wall Street Transparency & Accountability Act of 2010', is wide ranging and necessarily complex (it covers 218 pages and can be read here) but the meat of the proposal which has been warmly welcomed by such industry leaders as the American Trucking Associations (ATA), is that it is being seen as a tool to preventing another energy bubble like the one witnessed during the summer of 2008.

“The trucking industry appreciates Sen. Lincoln’s leadership on this critical piece of legislation that will increase transparency in energy markets and reign in excessive speculation,” said ATA Vice President Rich Moskowitz. “The legislation will help ensure that fuel prices are linked to the market forces of supply and demand.”

The opacity of derivatives markets and exemptions for speculators, derivatives dealers and other financial players have made it difficult for the Commodity Futures Trading Commission (CFTC) to effectively regulate and oversee commodity markets, which determine the price for crude oil, gasoline, and home heating fuels.

The Senators legislation includes mandatory clearing and trading requirements and real-time reporting of derivatives trades that will close existing loopholes in the energy futures markets. The draft legislation reins in financial players, like hedge funds and insurance companies, that speculate in energy derivatives by creating centralized clearing and aggregate position limits, while leaving an exemption from clearing and exchange trading requirements for legitimate commercial hedgers like trucking companies, petroleum marketers, utilities, airlines and shipping and logistics groups.

The ATA believe that bill to curb excessive commodity speculation while protecting the ability of the trucking industry to hedge its exposure to increased fuel prices. The Senator's press release at the announcement of the Bill last week stated it would “bring 100 percent transparency to the nation’s financial markets, prevent future bailouts and protect jobs on Main Street.”

An ambitious target indeed, and there is no doubt there will be numerous battles ahead before the measures proposed pass into law but in an industry where a one-cent increase in the average price of diesel costs the trucking industry an additional $340 million a year in fuel expenses and trucking fleets spent $146 billion on fuel in 2008 (Up $32 billion from 2007) and with shipping lines equally vulnerable, any measures to even out the market will be warmly welcomed.

Photo: Senator Blanche Lincoln