Spot Rates vs. Contract Rates in Shipping: What’s Best for Shippers?

Pamela Nebiu Pamela Nebiu February 01, 2023
Spot Rates vs. Contract Rates in Shipping: What’s Best for Shippers?
Each day, shipping managers are under pressure to keep their supply chains moving while also considering ways to lower their freight costs. The goal for all shippers is to develop year-round carrier density that supports their shipping lanes — and to make sure their rates are competitive with market conditions.
But as anyone who has worked in the freight business knows, freight happens. Sometimes, the truck marketplace is unforgiving, making it difficult for shippers to find dependable trucks at a reasonable rate. Forces beyond human control also influence the logistics industry. Did someone say “global pandemic?” How about economic inflation and the specter of a looming recession? These things and more directly affect market conditions. Yet, whether shippers are moving their freight with contracted rates or playing the spot market, it’s important to balance dependable truck capacity with an eye on the budget.
This article looks at spot rates and contract rates — and what shippers should consider when deciding which is best for their company.
What are Spot Rates?
Spot freight rates are prices given to shippers who request service on a load with a generally limited lead time for pickup. The price offered for spot rate shipping considers a number of factors, such as:
  • The type of equipment needed
  • Available capacity
  • Load details
  • Pickup time window
  • Delivery date
Often, shippers depend on the spot market for two principal reasons:
  1. They have infrequent volume for a particular lane
  2. They need a recovery truck when a carrier drops off an expedited load
The spot market can be highly volatile for shippers needing a truck. Spot rates might fluctuate up to 50% in any year due to truck marketplace fluctuations and the available capacity in a specific lane. A good barometer for understanding spot market rates is the Tender Reject Rate, which refers to the total rejection rate of tendered loads in the contract market.
U.S. shippers that move fresh produce depending on the spot market for competitive rates. They need spot rates and a truck to transport time-sensitive just-picked-off-the-farm commodities immediately. Spot market rates are especially volatile during the growing season when reefer capacity shifts toward agricultural-producing areas of the country, such as Florida, Washington, California, Arizona, and Texas.
What are Contract Rates?
Contract rates make up the vast majority of shipping volume in North America — and 80% of the total truck market, according to FreightWaves. Contracted freight pricing is used primarily by shippers who have regular load volume in particular lanes; the rates are generally stable throughout the contract period as carrier partners and shippers alike can develop steady capacity. One of the advantages of having contracted rates for shipping lanes is that the rate is negotiated during the bidding process long before scheduling the first load for pickup. This allows both parties to research and analyze historical market rates on a particular lane. Together they determine a rate for adequate service in that lane.
Major shippers with dedicated volume rely on contract rates as a safeguard from a generally unpredictable and volatile U.S. truck market. Carriers who agree to contracted rates must adhere to the terms of their contract; even if the spot market rates become favorable to carriers, failing to adhere to a contract rate may result in losing the dedicated lane — or worse, losing the business relationship altogether! Yet, carriers are tempted anyway, as there are times throughout the year when the spot market is extremely lucrative for carriers who often capitalize on dramatic market fluctuations to make more profit. 
Spot Rates or Contracted Rates: Which is Best for Your Business?
The answer to this question is, well, it depends. In general, it depends on the size and type of shipper in question. Small to medium-sized shippers who operate lanes with inconsistent load volume will likely use the spot market to secure their capacity. Small shippers usually have fewer, if any, pricing events throughout the year and may rely on a single 3PL or asset-based carrier to service their volume.
If you are using the spot market, it makes sense to partner with a logistics provider that offers dedicated freight solutions and access to thousands of vetted carriers throughout their transportation network.
Major manufacturers almost exclusively depend on freight contracts negotiated with their carrier partners. Companies with extensive supply chain networks that cross hundreds of lanes to move hundreds of loads per month may have multiple RFP events each year and may work with various transportation service providers. Yet, the spot market may also be advantageous for large shippers, especially considering how unpredictable the logistics industry is in 2023.
Spot Rates vs. Contract Rates: The Outlook for 2023
The 2022 spot market peaked in Q4; the declining spot market rates are generally an indicator that contracted rates will soon decline as well. One market analysis stated that spot rates were down 30% in Q4 2022 and predicted contract rates would decrease by 10-15% by the end of Q1 2023. It’s still too early to predict what 2023 will offer shippers. Yet, with most shippers still trying to navigate an unpredictable and volatile U.S. truck market, they are turning to expert-driven, tech-enabled transportation providers to source on-demand capacity when they need it most. 
Lock Down Your Capacity with Edge Logistics
Shippers want consistency when sourcing quality trucks on the spot market or for their contracted freight. Edge Logistics, a leading transportation service provider, years of industry experience with award-winning technologies designed to help optimize supply chains for shippers throughout North America. Edge’s technology allows shippers, big or small, to gain real visibility and control over their supply chain. Edge Logistics’ CAPACITY for Shippers platform smoothly integrates within any existing TMS, offering shippers a range of capabilities at their fingertips. Gain an edge on your supply chains. Contact us today to learn more about how Edge Logistics is transforming how shippers handle their freight.

About the Author

Pamela Nebiu

Pamela Nebiu

Pamela is the Senior Marketing Manager at Edge Logistics. She has a Bachelors of Arts from DePaul University in Public Relations and Advertising with a minor in Photography. Pamela is responsible for overseeing advertising, marketing, press, and social media related to Edge.