How contract freight and spot freight analysis guides mini-bids

Adam RobinsonFreight Market Blog

contract freight OTRI vs national rates

Spot freight rates are higher. Contract freight rates are lower. Contracted capacity is severely limited. Contracted capacity in each lane is the most competitive it’s ever been. Contracted capacity and tender rejections are at record highs. Spot rates are still climbing. Now, contract rates are climbing in tandem. And the election is putting more pressure on usually overlooked lanes to reallocate resources. Sound dizzying? The reality is that currently the freight market, due to many market forces, is more volatile than ever. How do freight market participants keep up and plan or execute without missing customers’ shipping deadlines and freight budgets? Many use actionable insights derived from the analysis of freight data. 

Freight market participants need a holistic view of freight market data to hedge against volatility

That slight review of a few common factors affecting the balance of spot and contract freight is only a fraction of the true complexity within today’s global supply chains. It’s not as simple as looking at broad market conditions and following a catch-all strategy for using spot versus contract freight. In addition, all freight is bought and paid for on spot, giving rise to the concept of the market rate. So, the whole idea that a rate boils down to a single choice between two factors is ludicrous. Global supply chains are far too complex for such broad assumptions. 

And depending on the unique factors affecting each lane, mode, carrier, provider, shipper, broker, or forwarder, it may be time to rethink the approach to contracted freight in times of volatility. In fact, mini-bids can help shippers get more capacity at a more competitive rate when contract freight capacity declines or rates are moving too quickly. Of course, it helps to know why. 

Why looking at contract freight versus spot freight overlooks the biggest influences

There’s a major misconception that contracts are always better. It’s not reality. While contracts can help keep rate stability in some lanes, the crux of the whole idea rests on assumed capacity. No supply chain party can really guarantee that unless they have a dedicated fleet of drivers capable of handling needs. Failure to investigate the specifics for all aspects of freight will lead to poor decisions, higher freight spend, and greatly under- or over-valued assessments of contracted freight. 

Data and its role in guiding mini-bids is undisputed

More importantly, analyzing contract freight versus spot freight rates is not isolated to shippers. Take the impact that analyzing data can have on freight forwarders for example. Forwarders will need to look at all modes, all rates, all lanes, and all transactions to gain a truer picture of health. Unfortunately, getting access to this information in the first place is not always easy. According to Supply Chain Dive, “in order to fully digitize the freight forwarding process, each step the forwarder manages must be automated from the ability to book and monitor cargo on truck, rail, air and ship, to the customs process to a seamless transfer of data between the forwarder and the client.” 

Making the most use of available systems, actionable insights powered by big data, and freight forecasting resources, all freight management parties need to know how that data can make a difference. It’s simple; it comes down to having access to the data to inform the negotiations process during a mini-bidding cycle. As reported by Deborah Lockridge of TruckingInfo, “shippers and carriers alike want the stability of long-term contracts for certain lanes. But there’s still plenty of transactional freight, and a lot of inefficiencies to be addressed, as spreadsheets, notebooks, telephones and laminated maps are still the tools of choice for many small brokers and carriers.”

Thus, the question becomes, “what is the right way to approach mini-bids as a way to overcome the spot versus contract freight conundrum?”

The shipping industry needs
a new metric – the Market Rate –
to end the spot vs contract battle

How analyses provide insight and make decision-making easier

The steps to analyze are relatively simple. Collect and analyze everything. Make it easier to see and interpret. 

While that sounds great on the surface, it’s too much to do manually or with in-house data alone. That’s why more companies have turned to freight forecasting engines that bring all the data together and provide real insights. 

For example, FreightWaves SONAR provides lane, mode, region, and trend data to enable better decision-making. By reviewing market freight indices within a given lane, freight management parties can provide the best and most competitive rates for freight. This transcends party lines – helping carriers to set rates and shippers to offer better-paying shipments. It’s all the same in terms of value. SONAR makes the hidden visible and makes it easier to interpret through visualization resources.

Know how spot freight analysis enables better contract freight spend management

Spot freight analysis provides immense insights into the state of the overall freight market. Since everything involves a degree of spot rate influence, taking advantage of new bidding strategies still requires an understanding of what’s happening in the spot market. This is crucial to ensuring the new bidding processes are reflective of changing market conditions. For those that put the power of SONAR to work, those processes will be much easier to manage. Request a SONAR demo online now to learn more about how to better measure freight market performance and plan contract freight decisions.