An Introduction to Spot Market Trucking

Spot market shipping doesn’t have the best reputation in the trucking industry—customers usually turn to this method when their shipping is experiencing disruptions, pricing is high, and capacity is low. And while it’s true that spot rates can be volatile, when used strategically, the spot market can be hugely advantageous for both shippers and carriers. 

In this article, learn more about spot market trucking, when to use it, and how it can be beneficial for shippers and carriers alike. 

Understanding spot rates

Simply put, a spot rate is a one-time fee or rate that a shipper pays to move a load. Sometimes referred to as a spot quote, these rates are calculated based on the current freight market prices and are typically higher than long term contract rates, as they reflect a one-time deal rather than an ongoing agreement between the carrier and the shipper. 

Spot rates vs. contract rates

One of the biggest distinctions between carrier and contract rates is the duration of the agreement. While contract rates are a long-term form of pricing in which shippers award lanes to carriers for a committed price over a period of time, spot rates reflect a one-time fee paid for a single shipment. 

Additionally, contract rates are generally more stable than spot rates, which are more dynamic and change frequently based on a variety of factors, including driver availability, fuel costs, and load-to-truck ratios. 

Key features of contract rates include: 

• Stable pricing
• Long-term contract
• Cover a shipping lane
• Set during a procurement bid
• Usually favorable for the shipper

Key features of spot rates include: 

• Dynamic pricing
• Short-term contract
• Covers a specific load
• Set with a one-time quote
• Usually favorable for the carrier

Which is cheaper?

As a general rule, contract rates are more favorable for the shipper, as carriers are more willing to negotiate rates down when they’re guaranteed consistent freight volume to carry. That said, this is not true 100% of the time based on market conditions and the state of a relationship between the shipper and the carrier. 

The market is cyclical and always in a state of flux, meaning that although they’re more frequently higher, spot rates are sometimes lower than or equal to contract rates. In a shipper’s market, for example, spot rates are generally lower than contract pricing. A shipper’s market means that carrier competition for available loads is high. In contrast, in a carrier’s market, shipper competition for drivers is high, and spot rates are usually higher than contract rates.

How are spot rates determined? 

As discussed previously, spot rates are constantly changing based on market conditions, and ultimately it’s the supply and demand that most heavily influences what the current rates are. There are a number of factors that influence the supply and demand, including: 

• Fuel prices
• Freight volume
• Equipment availability 
• Seasonality
• Geographic Location
• Weather conditions

Carriers and shippers use these factors, industry trends, and their own cost structures to determine their spot market rates. But while it may be tempting to select the highest or lowest rate (depending on whether you’re a carrier or shipper), it’s essential to keep competitors’ rates in mind so that your rates remain competitive and you don’t lose out business to other companies. 

Another important factor to keep in mind is that spot rates and contract rates don’t operate independently of each other. In fact, the spot market activity in the three to six months prior to a contract bid has a significant influence on the negotiations for the contract rate. If spot rates are trending high during that period, the contract rates will likely also be high. But if they’re lower, the contract rate will remain stable or may even decrease.

Why use spot rates?

There are several scenarios in which shippers might use a spot rate instead of a contract rate. Take a look at three common situations in which choosing to ship using a spot rate might be the best option. 

• There are not enough loads to warrant contract pricing. It might not make sense for a shipper to utilize contract pricing if they have a low volume of freight to be shipped. For example, using spot market shipping may make more sense for a smaller business that ships less freight and doesn’t have as consistent of a shipping schedule.. 
• They have unexpected or unplanned freight. Perhaps a shipper has a sudden spike in the volume of freight that cannot be accommodated by the carrier. Opting for a spot rate allows them to get the extra freight shipped. 
• They have special or non-standard load requirements. In the event that a shipper needs to ship a load that requires special handling, equipment, or expertise that their usual carrier cannot accommodate, they may require a spot market shipment that is able to safely transport that load, while continuing normal shipping with their contracted carrier.

The benefits of spot market rates

Despite the bad rap spot market shipping sometimes has, there are in fact many benefits to using this kind of shipping. These benefits extend to both shippers and carriers and should be taken into account when determining if spot market or contract shipping is the right choice.

Shippers

Shippers often view spot rate shipping as something that only benefits carriers, but in reality, there are many benefits of spot rate trucking for shippers as well. Spot market shipping allows for far greater flexibility and immediacy than contract rate shipping does. Say an e-commerce shop has a sudden spike of orders—rather than waiting for contracted carriers to be available and risk backorders or delayed deliveries that will upset customers eager for their product, the company can utilize spot market shipping to get shipments out quickly. 

Spot rate shipping can also be beneficial when a shipper is expanding to a new region where they don’t have contacts, looking for a new carrier, or experiencing other changes to their operation structure. Spot rate trucking allows shippers to vet carriers and determine if they’re efficient, reliable, and a good fit for the services they need rather than signing a contract with a new carrier and hoping for the best.

Carriers

The spot market generally leans in favor of the carrier—when spot rates are high, carriers are able to book one-off loads at higher prices and generally have more leverage when negotiating rates with shippers because the demand for carriers is so high. But the benefits of spot rate shipping for carriers goes beyond favorable rates. 

The spot market is a way for carriers to build relationships with shippers and potentially build long-term partnerships. If a carrier is able to provide a competitive rate and quality service for a one-off spot market shipment, shippers may return to them again and again—potentially even entering a longer term contract with the carrier. 

The spot market can also allow carriers to optimize their loads and increase revenue. When shippers use less-than-truckload (LTL), carriers can fill the remaining space in their trailer with spot market shipments to maximize space and be sure that no truck is hauling a partially full trailer. A full truck generates more revenue and is more efficient—and environmentally friendly—than a truck that isn’t filled to capacity.

Let Truckstop find you the best spot market trucking rates

In an ever fluctuating market, spot rate shipping can allow both carriers and shippers flexibility and efficiency, as well as offering favorable rates for both parties. At Truckstop, we are dedicated to making the shipping process as easy as possible—including by helping you find the best spot market rates and reliable partners.  
Check out Truckstop to stay ahead of the competition, maximize your profits, and discover all the spot market insights we have to offer.