The Ultimate Guide To Mastering Spot Freight

Going to the spot market is a great solution to get a shipment out fast and on your own shipping terms. But there are still many who haven't grasped how to use spot buying to their advantage to secure the most competitive spot rates.

Today, we will explain all you need to know about spot freight to enable you to boost your supply chain game, with a spot freight strategy in your back pocket.

What is Spot Freight?

Spot freight (or spot buy freight) is a procurement method used by shippers that is mainly facilitated via ad-hoc shipping rates also known as spot rates.

What are Spot Rates?

Spot rates are freight rates typically agreed between a shipper and a logistics provider that are not part of any pre-existing rate agreement. It is most commonly used for expedited shipments, project freight, spare parts logistics and the moving of capital equipment.

These rates can change and typically have an expiration date, which can be as short as the same day or a few days ahead.

What factors influence Spot Rates?

Supply and demand: This is a core driver of spot rates. A higher demand for any typical freight mode (truck, sea, air, rail, etc) will lead to higher rates and vice versa.

Fuel costs: Fluctuations in fuel prices directly affect the operating costs of carriers, and these changes will be reflected in spot rates.

Route and distance: Longer distances tend to cost more due to increased fuel consumption.

Type and size of cargo: Specialized equipment, hazardous materials, and oversized cargo often require special handling and may incur additional costs.

Delivery urgency: Expedited or time-sensitive deliveries command higher rates due to the inconvenience caused to carriers and the potential need for specialized equipment or routes.

Market conditions: Market conditions related to seasonal fluctuations, economic factors, and even external events like natural disasters can impact supply and demand which determines the spot rate value.

Port congestion: Congestion at ports can delay shipments, reducing available capacity and potentially driving up spot rates due to increased demand for the limited available space.

Understanding these factors and their influence on spot rates is crucial for all supply chain professionals to make informed decisions in the dynamic and ever-changing freight market.

When is Spot Freight a good option?

When leveraged strategically, spot freight can provide you with significant advantages. Here are some key situations where spot freight can be a particularly good option:

Unforeseen spike in demand: When unexpected surges in demand occur, you might not have enough pre-booked capacity within your existing contracts to fulfill all your needs. Spot freight allows you to quickly source additional transportation for these temporary surges, minimizing the risk of stockouts and ensuring timely deliveries.

Time-sensitive shipments: In cases of urgent shipments where time is of the essence, spot freight can be a lifesaver! Because spot rates are negotiated for individual shipments, you can potentially secure faster transportation compared to waiting for scheduled deliveries under your existing contracts.

Testing new routes or carriers: If you're looking to explore alternative routes or carriers for potential cost savings or improved service, spot freight can provide an excellent opportunity to test the waters. You can try out different options without the long-term commitment of a contract, allowing you to gather data and assess their suitability before making further decisions.

Low-volume or irregular shipments: If you have infrequent or low-volume shipments that don't justify securing dedicated space in a long-term contract, spot freight offers a cost-effective alternative. You only pay for the transportation you need, avoiding the fixed costs associated with pre-booked capacity that might go unused.

Higher contract rates: The dynamic nature of the spot market can present opportunities for cost savings. By actively monitoring spot rates, you can identify periods where rates are lower than your contract rates and leverage this advantage for specific shipments.

Managing supply chain disruptions: Unexpected events like port congestion or disruptions from suppliers can throw your regular logistics schedule off track. Spot freight provides you the opportunity to react swiftly and source alternative transportation options to minimise delays and keep your supply chain moving.

The Problem with managing Spot Freight manually

In the world of supply chain management, the typical spot freight workflow is notoriously arduous. It involves a lot of manual effort, which makes it difficult for many shippers to secure the most competitive quotes.

It is mainly due to the fact that most of the processes revolve around email and phone communications, which includes getting spot quote comparisons, and negotiations. As a result, it leads to lack of transparency, wastage of time, and higher costs.

Automating the Spot Quoting Process

Thankfully, there have been technological developments designed to improve spot freight processes. Cloud-based transportation management platforms have been on the rise to reduce manual processes by integrating communications and documentations all within a single location.

Some platforms also offer shipment visibility features that enable shippers to track their shipments or get in touch with their Logistics Service Providers on the go for status updates. Freight analytics are also becoming increasingly available for shippers to optimise their spot freight operations through valuable insights garnered via every shipment.

Tips to manage Spot Freight

Technology can help but your abilities and skills as a shipper are paramount. Here are some of the key tips to help you manage spot freight better:

1. Plan and prepare: Before initiating the spot freight process, clearly define your shipment details like origin, destination, cargo type, and desired delivery timeframe. This clarity will streamline your communication with your Logistics Providers and allow them to provide accurate quotes.

2. Negotiate effectively: Strong communication and negotiation skills are essential not only for contract freight but spot freight as well. Be clear about your requirements and expectations, but also be open to considering counter-offers from potential carriers. Aim to find a balance between securing competitive pricing and ensuring reliable service.

3. Prioritise reliability: While cost is a significant factor, don't solely focus on the lowest price. Investigate the Logistics Service Providers' reputation, track record, and ability to meet your specific needs. Partnering with reliable carriers can prevent potential delays and ensure your shipment arrives safely and on time.

4. Monitor market trends: Staying informed about fluctuations in the spot market can be advantageous. By understanding current trends, you may identify opportunities for cost savings or adjust your strategies to navigate market conditions and optimise your spot freight.

Optimising Spot Freight could realise up to 27% in Cost Avoidance

Spot freight may only occur on an ad-hoc basis but, if not well managed, can greatly inflate your overall freight costs. The problem is that most shippers have no visibility into their spend on spot freight. Hence, they are unaware of the impact on the bottomline. Cargobase customers see an average of 27% cost savings in their spot freight within 6 months of implementing our software.

With supply chain disruptions here to stay, the use of spot freight is bound to increase. Every shipper needs a system to manage spot freight in a way that's compliant with company policies.

Cargobase TMS has a comprehensive spot freight procurement feature that enables shippers to easily secure the best rates from their pool of approved providers, while maintaining 100% compliance. Shippers can also compare between contract and spot rates, in order to get the most competitive rates, without additional effort.

Furthermore, Shippers can also execute and track shipments, while using the in-platform communication features for enhanced multi-team collaboration.

If you’re looking for a solution for your spot freight challenges, be sure to contact us to find out more!