What is Spot shipping?
Spot shipping, spot-buy freight, spot rates, spot freight market… you may have come across and read about these logistic terms.
Spot shipping is when a shipper (any company that needs to have goods transported from point A to point B) books freight transportation on a one-time basis without a long-term contract. The shipper receives a so-called “on the spot” price from a carrier or other logistic service provider to transport the goods.
Unlike contract freight, spot freight is not arranged via a fixed rate, contracted volume or lane over a set period of time. Also the type of freight can be different each time. Next to different types of freight, also the rates for spot shipments can change daily as they are based upon market conditions.
In the spot market, rates have little to no contractual obligations for both shipper and carrier. For contract rates, the pricing is more stable as it is fixed over a period of time for an agreed freight volume, lane, and vehicle. So it may seem that contract shipping is better, as companies may agree on a good deal. But this is certainly not always the case.
Although the spot market is more volatile due to numerous factors, it can be more suitable or cheaper than contracted rates in several situations.
When to use Spot shipping
In what type of situations do companies consider spot shipping? Is it only for smaller companies that cannot reach the minimum freight load for contract rates? And what if your organization already has a contractual agreement? Can you make use of spot shipments in a hybrid mode?
1. Seasonal demand
If your company experiences fluctuations in shipping demand due to seasonal factors, capacity availability is key.
In many sectors, the demand is irregular and so is the need for transport capacity. In addition, the volume difference can be unpredictable, especially for businesses that deal with peak seasons. In this case, spot shipping can be ideal. Companies can adapt the transport capacity needed per shipment, and select the right vehicle type and lane. This way, they can save resources during low season and they don’t need to comply with a certain freight volume.
Benefit: Meet increased demand during peak seasons without committing to long-term contracts nor minimum freight volumes.
2. Urgent or customized transport
For exceptional or time-critical shipments spot shipping can offer a pay-as-you-go approach. Interesting for logistic needs that are not part of the contracted agreement.
No business can predict all its logistics needs all the time, hence time-critical or exceptional shipments can occur. Many companies use a hybrid mode, in which they arrange spot shipments next to their contracted lanes. Spot freight is chosen to arrange a fast, dedicated solution within a day or even within hours. Especially for high-value goods you may require specific transportation modes, routes or carriers that fall outside of the contracted agreement. With spot shipping, they don’t need to set up a whole contract for sporadic deliveries.
Benefit: Flexibility to transport goods fast, secured and easy outside of the contract agreement.
3. Cost optimization
Dedicated routes can be expensive for irregular or short-term projects. And in certain market conditions, spot rates can be more beneficial.
It is a common perception that spot shipping is by default more expensive than contract freights. But this is not always the case. As spot rates are determined by many factors in the market and are very volatile, it can also happen that spot rates are cheaper than contracted rates. In a recent report shared by the IRU, the spot rates fell below the contracted rates in Quarter 3 2023. With spot rates, you can compare prices in real-time, and choose the option you like best.
Benefit: Compare prices and capacity in real-time and choose the best rate.
How to arrange your spot shipments in Europe
Select the right shipping partner
Experience and reliability are key in selecting a shipping partner for spot freight. It is an inefficient process for a company to check carriers for spot business one by one. Therefore it needs to be arranged via a trustworthy shipper partner that can do the work for them.
Whether it is domestic transport or international, it’s crucial to use a shipping partner that has experience and a proven track record. Especially for high-value, urgent and customized delivery, a shipping partner must be able to act quickly and accordingly. Redspher, with over 40 years of experience in time-sensitive shipments has an extensive network of over 15,000 vetted carriers. Convenient services for spot freight shipping are offered:
> Digital Marketplace: for shippers to procure from compliant vendors, ensure the best solution and manage budgets and approvals.
> Digital platform Shipper Portal: find, compare, and book reliable spot solutions within minutes.
> Freight forwarding services: experienced transport team for personal, tailored assistance.