The Basics of Spot-Buy Freight

A chapter in our freight procurement best practices series, the basics of spot-buy freight.

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 mainly for a single shipping request and outside any rate agreement they might already have in place.

What are Spot-Buy Rates?

Spot-buy rates are the transaction value agreed upon between the company and the shipping provider. These are usually the best available at that particular moment, depending on various factors and can fluctuate later on. Spot rates are typically quoted within a specific period and can be applicable for anything that needs to be shipped within the same day or a few days.

Factors That Determine Spot-Buy Rates

There are several factors that influence the final quote you receive.

  • Freight mode: Road versus air, air versus ocean, et cetera.

  • Capacity: Is it peak season for instance?

  • Transit Time: Is it a regular or express service?

  • Lead Time: Do you need a rate now or next week?

  • Additional Services: Customs clearance, packaging, et cetera.

  • Relationship: Your loyalty to the logistics service providers may affect your rates. Regular partner or exception?

  • Frequency: Ad-hoc low volume or frequent bulk?

  • Competition: Are (multiple) parties motivated to be competitive?

Why Do Companies Use Spot-Buy Freight?

Most shippers, especially the larger ones, will put their freight volumes out for tender every year. 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. For example, this can be due to shipments to new customers or cargo from new suppliers. Other possibilities include sample shipments, replacements, extra demand, faster transit time, service upgrades, returnables, and breakthroughs like the COVID-19 pandemic.

The pandemic has changed the way how we manage our business and the working of supply chains. Overall freight rates increased and stayed volatile. As a result, most logistics service providers couldn’t honor previously agreed long terms rates. Companies have been forced to enquiry and agreed on pricing for a short term and sometimes even daily basis. These possibilities will undergo what is known as a spot-buy exercise. Some companies do not or 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.

When Does A Spot-Buy Exercise Apply?

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 and expedites where onboard-courier or air charters are required.

Spot-Buy Rates vs Contract Rates?

Spot-buy rates refer to the pricing and rates decided on the spot. These depend on the various factors existing at the very moment. On the other hand, contract rates are the pricing or rates agreed between the service provider and shipper for moving the freight over a set period. There are multiple factors to consider regarding whether a shipper should adopt strategic sourcing or spot buying. We have a simple guide to that too.

Is There A Science To Comparing Spot-Buy Rates?

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.

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