What is a spot rate in trucking? Supply chain professionals tend to associate spot rates with uncertainty, which may create a sense of dread or worry. While there’s good reason for that sentiment and the spot rate definition is complex, understanding what drives those transportation rates is not.
A spot rate in trucking, sometimes called a spot quote, is a one-time fee that a shipper pays to move a load (or shipment) at current freight market pricing. Spot rates are a form of short-term, transactional freight pricing that reflects the real-time balance of carrier supply and shipper demand in the market.
Spot rates and demand jump when there are sudden shifts in the trucking marketplace. According to DAT, spot load posts for May 23 to May 29, 2022, were down 8.9 percent week-over-week (WoW). Yet, they’re up 8 percent month-over-month (MoM) and down 17 percent year-over-year (YoY).
Now, consider the weekly, monthly, and yearly figures for spot truck posts.
- Week over week: Up 13 percent.
- Month over month: Down 8 percent.
- Year over year: Up 10 percent.
These figures illustrate that demand is fluctuating. Spot rates will mirror that volatility – and likely rise.
What Is a Spot Rate? Why is it Important in Freight Management?
What is a spot rate? Shippers generally think of spot rates as being higher. To that point, spot rates usually cost more than the contract market.
However, there are periods when the balance swings, resulting in lower spot rates than established contracts. Failure to consider spot rates will inevitably result in higher spend for shippers and possible losses for carriers. At the same time, transportation strategy without spot moves contributes to a greater risk of stock-outs and delays within the supply chain. After all, a freight capacity shortage is the antithesis of any supply chain.
Top Challenges in Spot Rate Management
- Dozens, if not hundreds, of local and regional carriers.
- Thousands of lanes.
- Differences in modes and transit time.
- Unemployment rates in certain areas.
When Is Spot Market Transportation Preferred?
Carriers in these circumstances may find themselves offering steep discounts or renegotiating established contracts simply to make up for lost volumes. As such, both carriers and shippers always play the spot freight market to learn when the spot market rates alongside contract freight market moves are the most advantageous means of operating for each period.
What Factors Influence Spot Rates in Trucking?
More automation into the actual market conditions can help shippers:
- Manage long-term carrier contracts with summaries of conditions by lane, carriers, rates, capacity commitments, and data-driven performance metrics.
- Integrate carrier-specific data and APIs to ensure all the above data is accurate and indicative of actual market conditions.
- Eliminate deadheading by visualizing low-cost capacity and taking advantage of backhauls.
- Organize data in a single source of truth for visibility into the spot rate market.
- Consider all modes, load boards, private fleets, and all-size carriers to find the best rates.