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What Are Spot Market Freight Rates and Contract Rates?

Freight rates are an indispensable part of the dynamic environment in the trucking industry. However, even experienced shippers may not know the process and/or details of rate forming or spot market rates. Let’s take a look at the nature of spot rates and how do they differ from contract freight rates.

What are spot freight rates?

Spot market freight rates are rates available at a very short period of time, right at the moment of the offer. These rates are mostly offered by freight brokers and are relevant on the spot if you agree to move loads for this price. Spot rates can be a good solution for last minute shipments, or for small shippers who don’t have enough freight volume to arrange contract rates. There are spot rates for both truckload and less-than-truckload modes, including dry van, flatbed, and refrigerated shipping.

Carriers and owner-operators use spot freight rates to fulfill capacity between the contracts, to utilize backhaul trailer space, and some even make the business solely on the spot rates.

What is the difference between spot and contract freight rates?

The main difference between contract and spot market freight rates is that spot rates are offered at a moment. The contract rate is an established price for a certain period of time. Contracts are usually signed for a year, so a shipper is securing the equivalent price in advance to move freight through an arranged lane. Contract rates are usually higher than spot rates, but in the long-term can be more cost-efficient for shippers with high volumes of freight.

What do spot rates depend on?

Freight rates depend on a wide variety of different factors. Since spot rates are extremely fluctuating, it can be difficult to understand which factors impact the price. Mostly, the spot rates are defined by freight-to-truck ratio, and with supply and demand. The higher the demand, the higher the price, and vice versa. Apart from demand, spot rates are affected by other factors like fuel prices and other market conditions.

Spot rates can be a working solution to save costs or find capacity for your last-minute shipments. If you are not shipping a large number of goods on a regular basis, you may benefit from spot freight rates too.

Read Everything You Need To Know: Spot Market Freight

Everything You Need to Know: Spot Market Freight

Have you ever wondered about how the product you buy from a store ended up there? The complexities of a supply chain and the steps for moving freight to its end location are often overlooked. But, for manufacturers, suppliers, and retailers, logistics is a top priority to business operations. Accurately planning for efficient transportation routes and potential delays comes with many challenges, which is why many shippers turn to a freight broker to ship goods.

What is a freight broker? 

Shippers should focus on one thing: the product. A freight broker is needed to move goods while the shipper focuses on their core competency. A freight broker matches shippers with transportation services in order to move freight from its origin to its destination. You can think of a freight broker as the middle man – connecting the shipper to a carrier and executing the freight move at the best rate. Freight brokers are well-versed in the latest trends and prices, plus have access to technology and a large network of carriers to make moving freight as efficient as possible.

What is a spot shipment?

Shippers will broadcast a load to a freight broker in order to find capacity at a low rate. Sourcing your loads to a single freight broker shows carriers your freight demand, enabling them to properly bid and commit to moving your freight. One advantage to using the spot market is to contain costs and reduce backlogs of shipping.

What are spot rates?

Spot rates refer to the price quoted for immediate settlement on a commodity and is based on the value of the product. Spot rates change frequently, so shippers have little control of their budgeting process for transactional transportation movement.

What is Managed Transportation?

Managed transportation services include a wider scope of service offerings from a 3PL. Managed transportation includes integration and access to a transportation management system and the option to have a logistics expert to help operate and monitor the data the technology provides. With managed transportation, shippers gain customized reports, effective operations and time savings.

Read More: Capabilities and Benefits of Shipment Tracking

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