The logistics industry is made up of an amalgamation of intricate processes and markets to manage the timely and cost-effective delivery of goods. Among these is the spot market for freight. Like the name suggests, the spot market serves to connect shippers to carriers that can haul or spot any of their excess or exceptional freight which isn’t covered by their long-term transportation contracts. This makes up about 15 to 25 percent of total freight movements.
For dispatchers who coordinate the movement and delivery of freight on a daily basis, being familiar with the spot freight market is a must. Keep reading to gain an overview of how it operates!
Using The Spot Freight Market Benefits Both Shippers and Carriers
Both shippers and carriers can benefit from the spot freight market in various ways. Shippers typically utilize the market if they have a shipping backlog and need to get their goods out on shelves as soon as possible. Such a backlog could be caused, for example, due to their own production of excess or exceptional goods, which they did not count on producing and therefore aren’t covered by a long-term contract with a carrier. Shipper backlogs can also happen if carriers experience sudden changes in volume and capacity, rendering them unable to carry all of a shipper’s goods at a given time.
For carriers, on the other hand, the spot market is a good place for them to fill their hauling capacity en route home from a delivery or to a newly assigned destination. As those with dispatcher training know, goods that truckers carry on a return trip are called back haul freight. Finding this back haul freight on the spot market is a good way to increase carrier profitability and maximize the utilization of capacity.
The Spot Market Is a Matchmaking Platform That Can Involve Freight Brokers
So how does the spot freight market work? Essentially, shippers and carriers broadcast their loads and capacities, respectively, and then they each look for a perfect match based on criteria like corresponding truck type for a certain type of goods, freight volume, and location of the final destination. If one of the parties finds an ideal match, they reach out to the other and begin negotiating a deal.
Pros With Dispatcher Training Know to Monitor Spot Market Rates
When a carrier and shipper (or freight broker) negotiate a deal on the spot freight market, they agree on what’s called a spot rate. This is a one-time price that is agreed to for the transportation of a particular shipment. Because of on-the-spot nature of this negotiation, spot freight rates are much more dynamic than those set by long-term contracts, which are fixed for given periods of time.
Depending on the state of supply and demand on the market, spot rates can swing between favouring shippers and carriers. For example, if there is an excess demand for goods on the market causing shippers to up their production and a shortage of carriers, then the carriers have the upper hand in setting the rates since shippers don’t have many alternative choices.
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