Understanding the difference between freight pricing options
Contract rates and spot rates are two of the most common pricing options when shipping truckload freight. Understanding how they work can help you determine which type of rate to use for each load — enabling you to manage your freight budget more efficiently and save on shipping costs. Let’s look at the definitions of both, and then go over when it makes most sense to use one or the other.
What is a contract rate?
A contract rate is a rate a shipper and a logistics provider agree on for a specific lane and certain time period (typically 3 months to one year). Contract rates are usually calculated based on a shipper’s estimated freight volume and a provider’s cost per-mile.
What is a spot rate?
A spot rate is a one-time rate based on supply and demand, or shipment volume compared to available equipment. Because spot rates reflect current market conditions, they fluctuate continually, sometimes even hourly. So, when load volumes are low and capacity is available, pricing tends to decrease. Alternatively, if load volumes are high but capacity is tight, pricing tends to increase.
Which should I use?
When it comes to choosing between spot rates or contract rates to move your freight, one isn’t necessarily better than the other — it depends on your situation.
If you have consistent shipments on consistent lanes (including peak season demands), it’s normally better to use contract rates. With this type of rate, you’re locked in — securing the capacity you need with consistent pricing.
If you’re moving a low number of shipments, have inconsistent loads and lanes, or have a one-time need (e.g., during emergencies), it may make more sense to use spot rates. With this type of rate, you can easily overcome any disruptions in your supply chain by immediately filling gaps to get your freight moving.
Get the pricing option that fits your needs from ITE LLC
Whether you need contract rates, spot rates or a mixture of both for your truckload shipments, ITE LLC has a solution. We’ll provide competitive rates that can help you save money and get you the capacity you need to move shipments fast. Learn more about our truckload service.
