Logistics and supply chain decisions have a direct impact on a company’s bottom line and its success to achieve a competitive advantage in the markets they serve.
Both freight spot and contract rates offer shippers a different value proposition, with contract providing the year-long security of price and capacity, while spot is there to assist shippers when their contract carriers are not enough or there is a special need to move freight on a lane a contract price has yet to be negotiated.
Understanding when to employ each will provide the best road to success.
Some believe the spot rate market is a place to save money, but we’ll get to that idea shortly until then let’s jump into the discussion on contract and spot freight rates.
A spot freight rate is a price a freight service provider offers a shipper at a point in time to move their product from point A to point B.
A contract rate is a rate a motor carrier, freight broker, or logistics service provider (LSP) agrees to use when moving a shipper’s freight for a set lane and its freight characteristics over a set period of time.
In most cases, contract rates are set for a one-year period. Spot freight rates are based on the market conditions at the time and at times are so dynamic that they change from hour to hour.
Why Do Shippers & Carriers Use Contract Rates?
The truckload market is massive and highly fragmented. There are thousands of carriers and shippers, each with their own agendas, strategies, and networks.
This creates an environment where both pricing and carrier capacity is constantly shifting — predictability is hard to come by, whether you’re on the supply or demand side of the market.
Why shippers like contract rates:
- Easier budgeting & forecasting
- More reliable capacity
- Ability to build strategic carrier relationships
- More accountability from providers (KPI tracking)
Why carriers like contract rates:
- More predictable revenue
- Consistent, and more efficient, driver scheduling
- Increased driver satisfaction
What’s the Difference Between Contract Rates and Spot Rates?
Cover a shipping lane
Cover a single shipment
Set during a procurement event
Set with a one-time quote
Usually favorable for shippers
Usually favorable for carriers
Given as a base rate + FSC
Given as all-in
Tracked with detailed KPIs
Less performance overnight
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