When it comes to shipping truckload freight, there are two main pricing options: contract rates and spot rates. Knowing the differences can help you decide which one to use for each load. Ultimately leading to better management of your freight budget and potential savings on shipping costs.
When a shipper and a logistics provider agree on a specific lane and time period, they establish a contract rate which is a pre-determined rate. This rate is typically valid for a period of three months to one year. To determine the contract rate, the shipper provides an estimated freight volume, and the provider calculates their cost per mile.
A spot rate refers to a rate that is determined based on the supply and demand or shipment volume in comparison to the available equipment. This rate fluctuates constantly as it reflects the current market conditions, sometimes even changing hourly. During periods of low load volumes and available capacity, pricing tends to decrease. On the other hand, when load volumes are high but capacity is limited, pricing tends to increase.
Selecting between spot rates and contract rates for transporting your freight depends on your specific circumstances. If you have regular shipments on predictable lanes, including during peak seasons, contract rates are usually the preferred option. By using this type of rate, you can secure the capacity you require at a fixed price.
Conversely, if you have sporadic shipments, unpredictable loads and lanes, or require emergency transportation, spot rates may be a better choice. This type of rate allows you to quickly fill gaps in your supply chain and ensure that your freight keeps moving despite any disruptions.
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