Spot & contract freight: what is the difference?
Many shippers at some point need to decide between moving their goods on the spot or the contract market. The selection is an important factor in anyone’s business strategy and makes a difference for further development and success. We explain the differences for you.
When shippers need to find their right logistics partner, they also must decide in which way to move their goods. One of the first challenges is to choose between spot freight and contract freight.
What is spot freight?
A spot rate is a short-term price agreement for shipping freight or a series of freight shipments within a limited, narrow time window, where the price is offered by a freight forwarder or logistics service provider. While contract freight generally is the somewhat preferred kind of shipment, there are also several reasons why spot freight is deemed a suitable option. These include time pressure, when freight needs to be shipped as soon as possible, in case of new business, but also to fill up a carrier’s empty space while being on the move to its destination, thus moving freight more sustainably.
What is contract freight?
In contrast to spot freight, contract freight – often referred to as primary freight – is a more long-term shipping solution, including stable pricing for shipments. The agreements for contract freight are usually set during an annual bid, also known as Request for Proposal (RFP). In an RFP, a company takes their forecasted shipping needs to their transportation providers for committed pricing. At the end of the process, the shipper will award lanes to specific providers based on the rate, service, capacity and other considerations.
Why do shippers and carriers prefer contract rates?
The transport market is characterized by a high degree of volatility. Contract pricing brings both shippers and carriers some level of predictability in order to be able to plan for the long term as well. Contract rates allow both shippers and carriers to reach more reliability in their business. For shippers that means first and foremost more reliability in capacity and easier budgeting because with a fixed contract not every shipment needs recalculation – in the worst case with varying price offers from different service providers.
For carriers, contract rates mean to reach for a more predictable revenue because of a more consistent order situation that does not constantly change. Organizational processes can also be planned accordingly and staff will optimally be deployed. Once the routes are fixed, new orders can also be accepted if desired. This increases the order situation and sales in the long term.
How much freight volume is needed to get contract rates?
Given the many advantages of contract freight, interest in corresponding rates is high. But what requirements must be met for this? There are no strict rules, yet it depends above all on how much freight a shipper wants to ship in a defined period of time. If you have low shipment volumes in a particular lane, contract pricing may not be the most cost-effective solution after all. For urgent shipments it is also better to rely on spot freight. However, if shippers know that they will be repeatedly shipping freight on a given route over a fixed period of a few weeks or months, contract freight is the right choice.
How Coyote Logistics can help
Whether you are looking for spot or contract freight, Coyote Logistics is the right logistics service partner. With our broad network of 7,500 carriers and 1,000 shippers in Europe, we give our customers and partners the needed consistency for long-term, contract freight for different types of mode requests.
At the same time, we are also the right partner in the fast-moving spot market with our dedicated, multilingual service team and our constant willingness to go above and beyond for our customers. We strive to handle even short-term and spontaneous loads reliably and together with our trusted partners.