You’ve been given a spot quote for your freight and you’re not sure how it was calculated or whether a spot quote is best for your business. Since the spot market is such a huge part of the trucking industry’s pricing structure, it’s important to understand exactly when it’s best to use and when it’s simply not.
Here at ATS, we’ve been working with spot quotes for decades so we know who they are best suited to serve, how they are calculated and when they should be avoided.
In this blog we will break down:
- What a spot quote is
- How freight brokerages use the spot market
- The upside of using a spot quote
- The absolute best scenario for spot quotes
- The downsides of using a spot quote
- The absolute worst scenario for spot quotes
- How you can ensure you are given the best spot quote
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What Is a Spot Quote?
A spot quote is an on-the-spot quote given by a transportation provider to their customer. These quotes are calculated based on current market pricing conditions as they relate to the shipment’s needs.
Spot quotes are specific to one shipment that needs to be moved sometime in the near future. As such, spot quotes do not create contractual or long-term obligations for the shipper or carrier.
Note, spot quotes fluctuate frequently making them difficult to predict.
How Freight Brokerages Use the Spot Market
Whenever you bring a non-contracted load to your freight brokerage they work to get it moved using the spot market. This process is pretty simple.
Following your request, freight brokerages present the capacity you need, where your load needs to be picked up and where its endpoint will be to their network of carriers in your area. These are carriers that they know, based on their track record, can get the job done.
After they’ve pushed your request into the spot market, your transportation partner begins the process of finding the best price for your load. One method employed by good freight brokerages to do this is to check your load against previous loads they’ve covered in that lane. This helps your provider to certify that the price you’re paying is comparable to what other shippers with similar needs are paying.
To stay abreast of current market trends, a reliable transportation partner will also check your price using freight matching tools such as DAT and Internet Truck Stop. These online load boards are a great resource for getting the most up-to-date load pricing information.
Note, the price you pay from one spot quote to another, especially in today's market, is subject to fluctuations. The spot market, like everything in our economy, is subject to changes to the ebb and flow of supply and demand. As such, it is difficult to predict where the spot market will trend at any given time.
Want More Information on How a Freight Broker Prices Freight? Check out This Ultimate Guide to Freight Brokerage.
The Upside of Using a Spot Quote
There are plenty of upsides to moving your shipment using a spot quoted rate. This is especially the case in an industry as dynamic as the trucking industry has been.
Since these rates fluctuate every day, there are plenty of opportunities to pay less money than you would if you were locked into a contract rate. Below, I’ve outlined the three main ways a spot quote’s responsiveness to current market trends can benefit you.
These three benefits are:
- The ability to find capacity on short notice
- You pay the current market price
- You’re given long-term flexibility
The Ability to Find Capacity on Short Notice
Moving your shipment using a spot quote, especially on a tight schedule, can help make sure that your freight is picked up. By pricing your quoted rate to execute, your transportation partner will be able to obtain capacity for your load on short notice.
In an industry dictated by supply and demand, the price you’re quoted on the spot market will be representative of the current market price. As such, carriers will be adequately motivated to service your load.
Although you are never guaranteed a truck when given a spot quote, a good transportation provider will do everything they can to ensure your needs are met.
This includes:
- Pricing your load appropriately given its lane and requirements.
- Using their network of carriers who they’ve vetted for reliability.
- Promoting an open line of communication every step of the way.
You Pay the Current Market Price
Note, when a heightened level of urgency meets momentary capacity, spot quotes are the way to go.
Sometimes though, depending on current market conditions, you may pay less than a shipper who has a contracted rate. Where a spot price fluctuates, a contracted rate stays consistent despite market fluctuations. This is where using the spot market can save you money.
Instead of being stuck at one price, a spot quote — when the market dictates — gives you the ability to pay less money for your shipment. Once again, it all comes down to timing.
When it comes to the pricing of your spot quote, having a good transportation partner on your side, like a freight brokerage, is vital.
These types of partners will use their expertise to make sure that the price you’re paying fits your needs exactly. In some cases, this may mean that they don’t choose the lowest-cost carrier. Instead, a good transportation provider will select from the range of rates offered by their carrier network and select the absolute best fit for you.
You’re Given Long-Term Flexibility
Unlike a contracted rate, moving a shipment using the spot market doesn’t lock you into any long-term commitments. As a result, if you’re a shipper with infrequent capacity requirements, the spot market provides a great solution.
Be it: once a week, every other week or once a month, using the spot market gives you, and your transportation provider, the ability to shift your shipping strategy to fit your needs.
The Absolute Best Scenario for a Spot Quote
Mark is the logistics coordinator at Hotel Building Company Inc. and has a project coming up. As such, Mark knows that his business will need a large amount of capacity over a relatively short period.
Since Mark - who doesn’t consistently ship freight - recognizes that he’ll need capacity in the coming days, he can have a conversation with his freight brokerage. In this conversation, Mark tells his provider that in three days he’ll need to ship six truckloads of raw materials from a fabrication facility in another town to his job site.
Mark’s freight brokerage takes this information and uses it to find the best solution for his needs. This process includes monitoring the truck market for current pricing trends and quoting his load to match them. His brokerage will also select a carrier who provides the best solution, not for the lowest price, but the right price.
When Mark’s deadline arrives, because he communicated his needs in advance, the materials he was waiting for show up on time.
The Downside of Receiving a Spot Quote
While there are upsides to using the spot market for your transportation needs — especially on short notice — a good freight brokerage knows that the spot market is not always forgiving.
No Pre-Planned Truck Capacity
When opting for spot pricing on your shipments, you don’t have a guarantee that there will be available capacity to move your load on super short notice. Although a good transportation partner will leverage their carrier relationships to help in this respect, nothing is set in stone. This is where lead time can make a difference, especially in the spot market.
Less Rate Stability
Pricing your load in the spot market lacks the stability of contracted rates. For this reason, if you have a high volume of consistent and predictable freight, spot quotes do not allow for proper budgeting.
Predictable, high-volume freight of this kind is typically coupled with a good amount of lead time. This type of consistent shipping requirement creates greater efficiency, higher stability and a lower cost to shippers. This is simply not the case with spot rates which fluctuate frequently.
Spot Quote Longevity
In most cases, a spot quoted rate is only good from an average of 24-72 hours after it has been given, unless stated otherwise at the time of quoting. Spot quotes are levied using the current market pricing and are not frequently forecasted into the future. Because of this, the rate you’re quoted may need adjustment after a certain period of time.
If you need to move a shipment 72 hours after receiving your spot quote, you may need to pay more than the originally quoted amount as it is adjusted to meet market demands.
Note, this is not always the case. The best freight brokerages will work with you to hold your spot rate beyond these normal limits. If you communicate your timeline ahead of time, these brokerages will be able to leverage knowledge of pricing trends and their strong carrier networks to hold your price consistent.
Frequent Negotiation
Spot rates can fluctuate and change with capacities at any given time. Relying consistently on spot rate pricing takes more time out of a logistic professional’s schedule. Because pricing isn’t fixed for any set period of time, there is a constant need to negotiate new shipment rates with each load to meet capacity needs.
In this industry, time is money. The time you spend negotiating your spot rate can add up and, in turn, cost you more money than a contracted rate. If you’re in a business where you constantly need shipping capacity, locking yourself into a contracted rate is much more effective than a spot quote.
The Absolute Worst Scenario for a Spot Quote
Cindy owns a national chain of bookstores. As such, she is constantly shipping inventories back and forth from her distribution centers to her stores. Because of her consistent capacity requirements, Cindy wants a reliable rate that she can depend on and plan for.
Cindy doesn’t want the unpredictable price changes that come from interactions with the spot market. Cindy needs a written contract outlining exactly what she should expect to pay every time her freight is moved.
How You Can Ensure You Are Given the Best Spot Quote
There are two main ways for you to make sure that the spot quote you’re given is correctly positioned to set you up for success
These tactics are:
- Pick a reputable brokerage
- Understand all the aspects of spot quote pricing
Pick a Reputable Freight Brokerage
Choose a brokerage with a long history of success. In this industry, brokerages who don’t put their customers first don’t succeed. It’s as simple as that.
Find a brokerage who will quote you a price on Monday when you request a truck and stick to that price on Wednesday when the truck arrives to move your freight. These types of brokerages may not always charge you the lowest price but I guarantee it will be the right price — the price that will get the job done.
Understand All The Aspects of Spot Quote Pricing
Having a firm grasp on how spot quotes are priced is an important piece when it comes to getting the best rate for your freight. Common factors influencing the price of your load are:
- The distance your freight needs to travel.
- The balance between supply (available trucks in your area) and the demand for their services (freight that needs to be moved at that time).
- Your level of urgency of your shipping needs (how much time you have to find a shipping solution).
- The destination for your freight (is there freight available for transport in your endpoint).
Understanding the interplay between these factors when it comes to how your shipping costs are calculated is very important to getting the best rate for you.
Pick a freight brokerage that is willing and able to explain all of the factors influencing how they calculate the price you pay. The more you know, the better equipped you will be to succeed in this industry.
Pick The Best Pricing Structure For You
Now that you have a better understanding of spot quotes, how a freight brokerage uses them and when they are best utilized, you can continue in your shipping journey. To do this you must take stock of your needs and communicate with your provider. By doing so, you will be setting yourself up for long-term success.
Keep in mind, spot quotes aren’t for every situation.
Spot quotes are best for short notice, irregular or infrequent capacity requirements. It’s up to you to decide how they fit into your supply chain. If you would like further guidance on how ATS can help with your shipment pricing needs, let’s talk.
