Whether a business ships once a month or multiple times a day, understanding how spot and contract rates work is essential to managing freight costs and keeping deliveries on schedule.
Shaker’s Director of Logistics Services, Matt Janeski, CTB, shares insights into each option and how to secure a contract that fits your operation.
Rolling the dice on the spot market
Shippers and 3PLs use the spot market to find capacity for last-minute and one-off shipments, with the lowest-bidding carrier often winning. Low-volume and infrequent shippers might rely solely on the spot market, while most shippers use a mix of spot and contract freight for their transportation.
Because the spot market represents real-time capacity, it’s most beneficial to shippers when the market is loose (freight volumes are low; the number of available trucks is high), allowing shippers to take advantage of lower rates as needed.
However, this flexibility isn’t without risk. The spot market shifts daily, and when the freight market tightens (freight volumes increase beyond available capacity), spot rates can surge. Shippers relying heavily on the spot market might find themselves paying double or triple the rate they paid in previous weeks.
Beyond its notorious volatility, the spot market is challenging for shippers with complex or sensitive freight. Carriers sourced through load boards may not be familiar with handling trade show equipment, electronics, or hazardous goods, increasing the risk of delays or damage. Shippers with sensitive or valuable freight should rely on their trusted partners whenever possible rather than turning to the open spot market.
“Shaker serves a plethora of shippers with sensitive freight, so we create networks of vetted specialty carriers to match their needs,” Matt said. “When shippers come to us with spot requests we use these custom carrier pools to move spot freight without the added risk, though rates are still dependent on the current market.”
Secure capacity with contract freight
A chemical manufacturer with weekly shuttles between plants, a marketing firm that exhibits at monthly trade shows, or a construction company managing a seasonal project – shippers like these often contract freight to get predictable rates and dedicated capacity.
Contracting freight allows shippers to forecast their budget and build shipping costs into client pricing. Contracts also serve as a buffer against a changing market, insulating shippers from rate volatility. When capacity is loose, spot rates dip below contract rates; when capacity tightens, spot rates can spike. To account for this dependable contract rates typically sit slightly above the spot market, providing stability and consistent coverage.
Additionally, contracting facilitates long-term partnerships between shippers and 3PLs who understand a shipper’s freight and expectations.
“Shippers who contract their freight find logistics less stressful,” said Matt. “Contracts create a steady stream of reliable coverage from an experienced partner, while reducing the delays and risk that can come with using the spot market.”
Contract negotiation & keeping pace with the market
Large-scale events like natural disasters, trade disputes, or labor strikes can shift the freight market dramatically. When this happens, contract rates are often renegotiated to level with the new market conditions.
“Successful contract negotiations happen when both parties are honest about the realities of the market,” said Matt. “Contracts are designed to create mutual stability for the shipper and the logistics partner. When the agreed-upon rate can no longer buy capacity, it needs to be revisited.”
Following basic supply and demand, carriers charge more for their services when the market tightens, and 3PLs need to ensure contract rates remain competitive to keep capacity steady. Conversely, when the market loosens shippers often revisit contracts to explore possible savings.
Because Shaker values integrity and partnership, our team proactively discusses market changes and their impact on contract rates with our customers.
Tips for building better freight contracts
“A successful freight contract depends on how well both sides understand the shipment details,” Matt explained. “The more information we have, the more accurate we can be while quoting a rate.”
Be prepared to provide your 3PL with detailed information on specific lanes and projects, including:
- Typical shipping days and hours
- Whether appointments are needed for pickup or delivery
- If there’s more than one stop on any lane
- If there are penalties for late deliveries from clients
- Commodity details, permits, or special handling needs (hazmat, oversized, etc)
Special shipping requirements can often be built into the contracted rate to avoid delays or surprise charges. For example, multi-stop lanes often include stop-off accessorials, shipments with rigid delivery windows require competitive rates, and hazmat and oversize rates account for the training and permits required to haul these goods.
“Shippers who trust their 3PL should contract as much as they can,” said Matt, “especially if that partner has deep industry experience and access to a wide network of capacity.”
Partnering for stability and savings
While the spot market offers flexibility, contract freight provides the consistency and predictability most businesses need. It allows shippers to:
- Forecast transportation costs and avoid budget shocks
- Build long-term partnerships with carriers and 3PLs
- Protect coverage when the market shifts
- Focus on their core business operations rather than chasing trucks
Both the spot and contract markets have their place in a shipper’s playbook. The most successful shippers know how to leverage both, and know when to lean on their logistics partners for guidance.
Not sure which way to go? Ask Shaker today. Our team helps shippers balance flexibility and stability to keep freight moving within budget and on schedule.