Which is better for fleet assets? Contract or spot freight?

Adam RobinsonFreight Market Blog

fleet assets

Figuring out the best strategy for managing fleet assets can be difficult at best. Unlike contracted rates, the spot freight market is full of wild price swings and uncertainty. And in freight management, a delay of a day or even hours can amount to significant delays and a poor customer experience. In general, this results in a preference for contract freight among shippers and carriers alike. After all, carriers can stay more strategic when they understand the likely freight volumes expected. But again, there are factors that disrupt this otherwise standard trucking RFP process.

Unfortunately, disruption and market volatility – sudden changes within the industry – will often have a dramatic effect on the spot market. In turn, declining spot freight rates can also result in shippers pulling loads from the contract market and placing them in the spot market. It is a complex process, and it is important for carrier operations managers to understand how contract versus spot affects asset allocation.

The problem with poor asset allocation between contract and spot freight

Freight management remains an industry in which balance reigns supreme. The data analyzed within today’s freight market goes back to the beginning of digital transformation. However, that is only the beginning of the true scale and advancement of freight management analytics. Consider this. In regard to the freight situation between 2008 and 2016, Trucking info.com noted how rates evolved from “since the bottom of that recession, contract prices have averaged a 1% quarter-over-quarter growth (annualized). Even with the big decline last year, spot prices have averaged 2%. This is consistent with the big move of random freight from the edges of contracts into the spot market.”  And now, the truckload freight market is on fire with massive demands created by the COVID-19 pandemic. And a failure to ensure trucking capacity availability within one market will have a resounding effect on allocation strategies of a trucking fleet’s assets.

Contract versus spot data factors influence the profitability of all fleet assets

Both contract and spot market data factors influence the profitability of all fleet assets. Remember that shippers have a vested interest in moving freight at the lowest rates possible. As a result, rising spot market rates means shippers want more contract freight. However, carriers may be locked into existing contracts that predate the pandemic. As the industry moves past the anniversary of the initial U.S. COVID-19 cases, that risk will continue to decline. With that in mind, carriers of all sizes must consider the average inbound and outbound volumes, when to reject or accept freight loads, the standard rates expected within individual markets and how global trade will inevitably impact the U.S. trucking market. It is a significant compendium of data, and few organizations have the available resources to manage that data, understand its impact and apply it through proactive truck utilization optimization.

Proactive management offers benefits that help guide RFPs and spot market rating/quoting practices

When looking at the ways that an organization can reposition fleet assets, it’s important to also look at the top freight indices and trucking KPIs that amount to higher profitability per load. That’s what it’s all about. And with new trucking RFPs in the works, it is now more important than ever to have access to this data to tailor freight bids based on actual market conditions and figure out strategic moves. After all, those translate directly into where a company will put its assets in the short-term and where capacity can rapidly scale to meet demands.

For example, a few ways to apply FreightWaves SONAR data to enhance RFP processes for contract freight and still leverage spot market moves include:

Stay strategic by knowing when to accept or reject fleet assets based on freight forecasting data analytics

The implication is easy to see. Without data, freight and trucking managers are blind and simply hoping for the best profitability. But they can guarantee their savings and boost revenue by knowing what’s happening, why it’s happening, and what it means for asset allocation. And now to answer the original question, “Which is better for fleet assets?” The answer is “both.” Utilizing carrier assets in both the contract and spot markets is the only way to really stay strategic. And it all begins by getting access to next-generation analytics and expert insight through FreightWaves PASSPORT and SONAR. What are you waiting for? Request a FreightWaves SONAR demo by clicking the button below.