What Is a Spot Rate in Trucking?

Spot rates in trucking help keep trucks at loading docks and moving freight.

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.

This trend coincides with industry leaders fearing a bottoming out of the trucking industry later this year. It’s a lot of information to process. Since spot rates can spin on a dime, shippers must understand the spot rate definition and how spot market freight fits in your transportation plan.

What Is a Spot Rate? Why is it Important in Freight Management?

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

Shippers who rely on spot rates must contend with more complex market data. Spot freight transportation may work for some shipments. But painting the whole market with one brush results in an overspend somewhere.
For instance, think about how these spot market attributes affect the volume of data analysis required to execute freight shipments in each market:
  • Dozens, if not hundreds, of local and regional carriers.
  • Thousands of lanes.
  • Differences in modes and transit time.
  • Unemployment rates in certain areas.
Each of these factors influences total costs and risk for every freight move. As a result, shippers must look at the impact of those variables on every shipment’s origin and destination (O/D).
Further, some load boards or spot capacity platforms may only offer visibility into dynamics for a particular market. Thus, it grows more troubling when you know whether the spot market favors a shipment.

When Is Spot Market Transportation Preferred?

Though usually leveraged for one-off shipments, spot rates are more favorable than contract rates in other situations as well.
This is especially true as market power shifts from carriers to shippers. In this situation, shippers may unlock lower spot rates than their contracted LSPs. Still, shippers must meet the obligations of contracts, including volumes and use. Failure to honor those commitments could lead to a hostile carrier-shipper relationship. Yet, it remains a gamble.

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?

Spot rates are driven by changes within the trucking market and the global economy.
More specifically, spot rates are affected by load-to-truck ratios, driver availability, fuel costs, and O/D pairings. Unfortunately, unpredictable market conditions and disruptions contribute to rapid changes in spot rates. In general, periods of excess demand result in higher rates, and periods of relatively stable conditions precipitate decreases in rates.

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.

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How MercuryGate Helps Navigate Spot Rates in Trucking

An understanding of spot rates is mission-critical to freight management.
Despite existing contracts, there will inevitably be some shipments that require spot transportation. Since spot rates in trucking are for one-off shipments and unplanned needs, the rates will always be subject to market volatility. However, the trick to successful spot rate management rests with a comprehensive view of rates across both contracted and spot rate needs.
That’s where a digital matching solution like that of MercuryGate adds value.

Supporting more visibility into current rates with its extensive Rate Repository and Freight Rate Index, MercuryGate is a market leader in providing insight into rate volatility. That leads to more optimized transportation and lower landed spend.

Ready to find out how integrated transportation management systems support superior spot market transportation?

See how MercuryGate makes the spot market work better for you.

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