A chapter in our freight procurement best practices series, the basics of spot-buy freight
Spot-buy freight is freight that shippers move using ad-hoc or spot-buy rates. These rates are agreed “on the spot” between a shipper and a logistics provider mostly for a single shipping request and outside any rate agreement they might already have in place.
Spot-buy rates are typically quoted within a specific period of time and can be applicable for anything that needs to be shipped within the same day or within a few days. Spot-buy rates tend to fluctuate depending on multiple factors.
There are several factors that influence the final quote you receive.
The COVID-19 pandemic has changed the way how we manage our business and how our supply chain works. Also, the way how we procure freight has changed. The limitations caused by the pandemic in for example flights and the additional capacity required to move PPE have a strong effect on freight rates. Overall freight rates have increased and are extremely volatile, and as a result most logistics service providers can’t honor previously agreed long terms rates. Companies are therefore forced to enquiry and agree on pricing for a short term and sometimes even daily basis. We refer to this as a spot-buy exercise and this document will share best practices.
Most shippers, especially the larger ones, will put their freight volumes out for tender on a yearly basis. In that way, they agree on a fixed rate applicable for a set timeframe based on expected volumes.
However, this might not always be possible due to unforeseen circumstances. Take for instance shipments to new customers or from new suppliers, sample shipments, replacements, extra demand, faster transit time, service upgrades, or returnables. Those will undergo a spot-buy exercise. There are also companies that do not or simply cannot agree on fixed prices as the nature of their business might not allow them to. For example, companies that deal with project freight, odd-size cargo, or shipment-specific shipping solutions.
All types of logistics services are suitable for spot-buy. The most common logistics services are road, air freight, ocean, rail and parcel. It is also commonly used for specialized services such as out-of-gauge shipments, expedites where onboard-courier or air charters are required.
Spot-buy rates are compared using several factors, which start with the rate itself. In some cases, however, the rate might not be the key factor; other factors can have a stronger impact, such as transit time, routing, additional services, or even the relationship between shipper and logistics provider.