Comparing spot market versus traditional contract rates is key for shippers to remain successful. Both of these options offer a variety of benefits, but they also have a few drawbacks.
Learning about the differences between both of these choices can help you decide on the best option to meet your needs.
The Spot Market in 2022
The spot market is highly dynamic compared to traditional contracts. These rates are usually negotiated within a few days or even hours of the ship date. The load-to-truck ratio in a lane is one of the main factors impacting spot rates.
Instead of going through a procurement process, shippers can initiate spot transactions by using online freight marketplaces. This process makes it easy to connect with carriers to send out shipments without going through a lengthy process that's common with traditional contracts.
Additionally, routing guides give contracted carriers the first right of refusal, as it will be available to the next carrier if the contracted load is rejected. Usually, shippers will have to pay more the deeper it goes through the routing guide.
Traditional Contracts in 2022
The majority of freight transactions happen through contracts. These agreements are often binding in price only. Negotiating contracts is a great option for shippers to secure capacity, which is key in higher-volume freight lanes. Carriers can also benefit from contracts due to repeat business.
One of the main differences with traditional contracts is the fuel surcharge. Shippers can use the surcharge to offset the cost of fuel for carriers throughout the contract term. On the other hand, spot transactions are usually negotiated by including fuel within the rate.
Shippers initiate freight contracts through a procurement process. Usually, this process begins a year or two in advance. Companies used to sign annual contracts, but they are now opting for shorter contracts due to the impact of the pandemic. Using traditional contracts still requires much more paperwork compared to the spot market.
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Our platform offers a wide range of features, such as real-time tracking, and paperless invoicing, and you won't have to worry about hidden broker fees. A dedicated customer service associate is also available if you ever need assistance.
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