Spot market rates in the trucking industry have become more popular in recent years. Owner-operators and freight brokers are becoming more interested in turning to spot market rates for work when it is convenient. These rates alter up and down by the day depending on the climate of the market.
Defining Spot Market Rates in the Trucking Industry
Spot market rate, also known as spot price, is defined exactly how it sounds. Simply put, it is a one-time shipping price quoted in real time. Spot market rates in trucking are the shipping prices that exist right now. They represent how much it costs to ship cargo if you were to get contracted on the spot.
The rates signify what a broker is willing to pay a carrier to haul a load. Many factors influence spot rates such as the current condition of the market, overall weight or size, distance traveled and supply and demand. The supply and demand are represented by the truck-to-load ratio.
When there are more loads than trucks, rates go up. When there are more trucks than loads, rates go down. Spot market rates in trucking are measured daily, even hour by hour. Freight professionals use third-party tools such as DAT and TruckStop.com to measure and understand the direction of the market.
Spot Maret Rates vs. Contract Rates
In a nutshell, contract and spot market rates in trucking represent fixed vs. fluctuating rates. Spot market rates are quoted one time on the spot, for single use and is usually paid by brokers. These transactions take place immediately.
Contract rates are negotiated between the shipper and carrier based on the volume of the shipment in advance of any freight move. It is basically a future contract. The rate quoted is typically held up for a year. Contract rates open up negotiation opportunities that are otherwise fixed with operating in the spot market.
What’s Right for You?
There are both risks and rewards with contract and spot rates in trucking. On one hand, spot contracts can be a high-risk strategy for truck companies because rates are constantly changing hour by hour. Because of this, opting to strictly use spot rate market rates is a gamble. Spot rates are based on how much one is willing to pay and how much one is willing to accept at that moment. On the other hand, there is potential to make money when the climate of the market indicates low rates.
Although contract rates are pushed out farther ahead, they tend to be more secure. You know what you are getting with contract rate because the rates are what you agreed on. For truckers, contract rates allow them to maintain business all year-round without necessarily having to worry about the climate of the market.
It is important to note contract and spot market rates in trucking can coincide with one another. Shippers under contracts can still use spot market rates and vice versa. This is because shippers under a contract rate are not obligated to move all shipments under the contracted rate. As long as minimum freight volumes are being delivered.
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