There are many things that influence shipping and freight costs, such as fuel cost, weather, trucker shortages, demand, freight class, what kind of LTL jobs a carrier is trying to organize, new freight regulations, and on and on.
When a shipper decides what is best for their bottom line in relation to spot quotes or contract rates, they really need to ask if having a fixed cost outweighs being able to shop around in the spot market. Not an easy question to answer in such a volatile market.
The spot rate, or spot quotes, are last minute, on-the-fly deals made between a carrier and a shipper. They are rates that are usually a one-time offer with an expiration date. Spot quotes can change quickly, from day by day, and even hour by hour.
Shippers can ask for a spot quote from carriers they already have a negotiated contract with or from carriers they do not have an ongoing relationship with.
Spot quotes are often requested when a shipper’s freight is travelling via a shipping lane the shipper does not already use or when the freight itself is outside of a negotiated freight class, of considerable size, or otherwise unique in its handling requirements. They are also generally used on FTL shipments.
GUIDE TO TMS - Reducing Freight & Shipping
Contract rates are negotiated rates between a carrier and shipper that usually last up to a year. These rates lock down pricing for a set period of time and make anticipated shipping costs predictable in a market where rates fluctuate wildly.
Contract rates can be negotiated through freight brokers, dispatch services, owner operators, or through Transportation Management Software (TMS) where the providing company has partner contract rates. (For detailed information on TMS, see our post Transportation Management Systems: Reducing Shipping and Freight Costs.)
Spot rates can be beneficial to smaller shippers who do not have the volume to attract carriers for yearly contracts at negotiated contract rates, however where possible, it is better to try and access contract rates. Shippers can save money in the long run with contracts in place when the freight industry rates go up and down due to the multitude of influences as mentioned earlier.
It is advisable to avoid asking for spot quotes across multiple carriers as standard practice. Carriers will start to recognize you as a company that wastes their time if you continuously ask for a quote and do not take them up on the offer.
When obtaining spot quotes, be aware of the risks associated with using a carrier that is new to your route and customer requirements. This can lead to chargebacks, late fees, and other issues that can end up costing more than you might have saved with the negotiated spot rate. For more information on spot quotes, please refer to our post 3 Tips To Get The Best Spot Quotes.
The best way to manage costs in your supply chain is through extensive planning. Set pricing through contract rates gives more control in anticipated costs. Contracts also allow you to build relationships with carriers whereby you can hold them accountable and let them get familiar with you and your customers’ requirements.
Download the Carrier Rate Shopping Guide
A Transportation Management System (TMS) gives shippers both small and large the ability to plan extensively throughout their supply chains. And for smaller shippers, finding a TMS that offers partner rates can give you that contract pricing that may be out of your grasp to properly negotiate.
And for those times when you absolutely have to use spot quoting, it is best to find a TMS tool that can help that process along, as often it can be a very manual, time-consuming process.
FreightPOP’s TMS offers tools to help streamline obtaining spot quotes when organizing FTLs. Even if the carrier does not have an API, our system can automatically send multiple emails to carriers you require spot quotes from. Our TMS then collates all the spot quotes into side-by-side information for you to select from.