Recall that all freight is bought and paid for on the spot market. And in that respect, all freight, including freight under a long-term, annual contract, takes this into account. Spot freight rates are those assigned to shipments with a high-priority delivery need. But still, errors in planning may lead to unnecessary spending. Failure to collect and understand market data will increase the total landed cost. Most importantly, the steps leading up to a decision to enter the spot market rather than relying on existing contracts can mirror a mini-bid strategy. And shippers need to know how that can make a dent in total landed transportation costs.
Indicators moving to the spot market is the right step
As explained by Transport Topics, “Spot market rates apply to shipments that need to be moved immediately. Contract rates are the price agreed upon to move a type of shipment over a certain amount of time.” However, it’s not always as simple as choosing spot or contract rates for all shipments. Working within contract rates also involves considering the true market rate – which mirrors the overall spot market. Additionally, rate deviations within individual lanes, modes and date ranges add to the complexity. The small decisions should reflect localized and overarching data. And it’s in this space where shippers move to spot freight rates. Of course, it helps to know how to recognize the signs that make moving to spot freight rates by lane, carrier, broker or other parties necessary. The top indicators it’s time for a switch include:
- Capacity is growing tighter.
- Tender rejections are increasing.
- Prominent trade lanes result in higher rates.
- Average lead times are increasing.
- Carriers are unable to accept guaranteed contract tenders.
- Accessorials on contract freight are increasing.
Entering the spot freight rates market and a mini-bid analysis are similar
Spot freight rates analysis clarifies that contract freight may not always be an option for brokers or shippers for every specific load. If the carriers do not have available capacity, your shipment will not go anywhere – regardless of how lucrative the terms in your existing contract appear. Not surprisingly, spot rates tend to attract the attention of more carriers and confirmed bookings. Everyone is in the business to make money. Fortuitously, recognizing the trends affecting all factors in the overall market gives rise to the true market freight rate that SONAR reveals by considering real or near-time freight rate data. This empowers shippers with data to make informed decisions. Therefore, shippers or brokers can better plan to choose to go with a spot rate when appropriate, give more consideration to lead times, and open discussions with carriers, logistics service providers and brokers regarding mini-bids.
The shipping industry needs
a new metric – the Market Rate –
to end the spot vs contract battle
How to make the most of using spot freight data and mini-bids
Maximizing the value of freight data lies in understanding its implications on local and global markets. The true market rate reflects an analysis across the entire freight market by mode, region, lane and carrier. However, a granular review of insights can help shippers plan for all movements without resorting solely to the high costs of spot rates. For that reason, shippers should follow these steps to maximize that value:
- Connect your supply chain with a freight forecasting engine.
- Tailor your insights to match the most frequently used lanes and modes.
- Look beyond typical movements to catch opportunities to save money by moving freight through other lanes.
- Consider how a multi-modal plan could eliminate the higher costs of moving with a single-mode.
- Make those insights easily accessible and actionable for staff, such as bringing SONAR Lane Signal and other critical freight data points into your TMS via API.
- Use that information to create RFPs for possible mini-bids with new freight management parties using SONAR’s Lane Scorecard.
Enhance your use of spot freight rates and mini-bids with a freight data engine
The right approach to modern freight management begins and ends with data. That data must maintain the highest standards, be cleansed of inaccurate or erroneous information, and apply to your operation. FreightWaves SONAR makes that possible, empowering shippers to know in advance when a shift toward spot freight rates is approaching and how that can be useful to tap mini-bidding before your competitors. Request a demo of how SONAR can improve your understanding of spot rates and real market conditions now.