What Is Spot Freight - Understanding the Basics

If you have you ever wondered what spot freight is and why does it occurs in conversations that often, then this guide will clear it up for you.

To put this in simple terms, we can say that spot freight is just a shipping arrangement, based on an “as-needed basis”, that lives outside of long-term contracts. In contrast to the “contract freight”, which locks the rates and carriers over a period, spot market freight is the opposite, offering complete flexibility for AD HOC shipments that, in most cases, are very time sensitive.

Therefore, this method of freight transportation lives in the dynamic freight market, where the spot freight rates go up and down based on market conditions.

Many companies use these spot logistics, specifically “spot trucking”, to haul freight quickly without long-term contracts in the supply chain.

How Spot Freight Works

Spot freight begins when a shipper needs to move goods without a long-term agreement. The process is quick, flexible, and designed for time-sensitive shipments that can’t wait for contract freight schedules. Here’s how the process goes in simplified steps:

1. Identifying Needs

The shipper specifies the cargo, pickup location, and delivery timeline. This information helps carriers determine spot freight rates for the ad hoc shipment.

2. Requesting Quotes

Shippers request pricing from freight carriers in the freight spot market. Each quote reflects market conditions and may vary depending on spot market trucking availability.

3. Selecting a Carrier

Once the quote is there, the shipper typically chooses a freight carrier as per the exact location and other contract freight considerations. This is a critical step that ensures the freight transportation meets potential requirements on time.

4. Finalizing & Shipping

The final part of the process includes the carrier’s confirmation of availability, and then the freight is on its way to the destination.

What Is the Difference Between Spot and Contract Freight

Spot and contract freight are very different when it comes to their general purposes in the freight transportation industry. Hence, understanding the differences is critical for businesses to decide when to use AD HOC shipments or long-term contracts.

In short:

• Spot Freight: Mainly used when time is of the essence, or for unexpected shipments, where spot market freight offers ultimate flexibility and reasonable pricing.

• Contract Freight: In turn, contract freight involves long-term agreements between shippers and carriers, providing predictable contract freight rates.

Here are some of the standout differences:

What Are Spot Rates in Shipping

The spot rates in shipping are the prices that carriers charge for the transportation of the freight on the so-called “spot market”. These freight spot rates are typically very dynamic as they go up and down unpredictably, but are always in perfect alignment with the current market conditions.

Some of the factors that influence the spot freight rates are availability, fuel cost, road condition (weather), and, of course, the nature of your shipment.

Since the rates depend on demand and supply, spot market trucking can be higher or lower than contract freight rates at any given moment. Using spot logistics allows companies to respond swiftly to changes in the freight market.

What Factors Influence Spot Shipping Rates

As mentioned, the spot freight rates are always shifting. So let’s get a better understanding of what exactly changes the spot rates daily:

• Supply and Demand: The most influential factor is supply and demand, since limited carrier availability drives freight spot rates higher.

• Market Conditions: Whenever economic shifts or any regional disruptions occur, the spot market freight prices are also affected.

• Distance and Route: The longer or challenging a route is, the higher the spot freight rate grows, based on factors such as weather, traffic, etc…

• The Fuel Costs: The always-rising fuel prices are another primary factor that frequently increases the spot market trucking costs.

• Time Sensitivity: The more urgent your shipment is, the more you may have to pay for a spot freight shipper to get your haul done.

• Equipment Type: The spot freight shipping rates could be higher whenever there is a need for specialized equipment, like a dry van.

When Is Spot Freight a Good Option

To wrap things up, we can confidently conclude that spot freight is the absolute best option for AD HOC shipments that are urgent, or when the market trucking is limited.

Spot freight shipping works well during seasonal peaks or sudden demand changes in supply chains. Companies turn to spot market freight, and spot rates offer flexibility over contract rates, making it a practical choice alongside long-term contracts.