How to Choose Spot vs. Long-Term Trucking Contracts
The type of work you pick as a carrier company can have an important impact on your business operations, especially when it comes to finding stable work. However, any carrier knows that finding regular work can be a challenge.
This is why many people prefer to book long-term contracts: they’re reliable and can secure revenue for months at a time, helping them to fill their drivers’ schedules, make business forecasts and plan accordingly.
But the freight sector is not always easy to predict, and sometimes carriers need to move fast to fill their capacity using spot-work for more on-demand jobs. Here, we’ll dive into how these types of freight carrier contracts work, and what to consider when choosing between them.
Spot or contract: What’s the difference between the freight contracts available?
At their core, spot contracts and long-term contracts serve different carrier requirements:
Spot freight
As the name suggests, spot work are jobs booked “on the spot”. These are ad-hoc, short-term haulage arrangements for moving freight from point A to point B. Carriers can negotiate the price per individual shipment. Often these will be for expedited shipments.
The spot market is known for its volatility. Weather, or other unforeseen circumstances, can create disruptions that quickly drive up prices, which can change on a day-to-day, or even hourly, basis.
This can benefit carriers, who need to raise their rates in order to maintain revenue throughout different seasons and those more uncertain and unpredictable periods. But frequent negotiation and booking processes are also known to create more of an administrative burden. The on-demand nature of spot freight also means that earnings are less predictable.
Long-term contracts
In the haulage industry these are typically fixed agreements between shippers and carriers which last an extended period. They usually cover specific or ‘dedicated’ lanes or cargo volumes. These freight contracts typically last six months or more, providing stability, which helps businesses manage their cash flow and effectively allocate resources for the foreseeable future.
However, unlike spot rates these contracts, while stable, are largely inflexible once carriers have committed to move the freight. This makes it harder for carriers to capitalise on market peaks and other, more lucrative loads.
What factors determine freight rates?
There are a range of variables that affect the prices of both spot freight rates and long-term contracts, but the following aspects determine the price calculations of each:
- Cargo characteristics: Heavy and bulky, fragile or hazardous freight will need specific handling or tools, which incurs higher costs
- Route: The longer the route, the higher the fuel costs, which pushes up prices
- Service agreement: if freight shipments are expedited, require special equipment, or have strict delivery schedules they will, in general, be more expensive
On top of this, carriers have been known to offer lower contract freight rates to shippers if they agree to long-term arrangements. This is because it provides consistent work. Spot rates are more influenced by market conditions including how many drivers are available or the level of demand. Busy periods squeeze freight carrier capacity, which pushes up rates.
How to choose between spot and contract rates
The reality is that both types of contract can suit carrier companies’ growth strategies. But the key is using them at the right moment. Here are the advantages and disadvantages to help you make that decision:
Market outlook
Analysing market conditions is a good place to start when picking the right type of freight work, as it can significantly impact prices. A volatile market with tight capacity means carriers are more likely to reap the benefits of demand spikes and short-term profits.
But, as a general rule, if demand is low and vehicles and drivers have more capacity, carriers will lower their prices—making long-term, fixed price contracts more attractive to your business.
Business strategy
Ask yourself: “What are your priorities as a business”? If you need predictable loads to maintain stable revenue, long-term contracts are the most suitable option. If you want flexibility above all, go for spot rates.
However, most carriers will combine both types of rates in order to get the best of both worlds, and not become reliant on just one.
Join Relay to access Amazon trucking contracts and spot freight
Amazon Relay offers carriers access to both spot loads and short-term haulage contracts to help them balance their priorities depending on what they need. Transportation companies need efficient, secure, and fair load work whether at short-notice or months in advance.
When you become a Relay carrier, you can search our load board for extensive opportunities. Our Relay contracts (RCM) last up to 12 weeks in length, starting and ending in the same domicile with route planning features. We also offer opportunities to book six-month contracts weeks in advance.
Create your account today to start hauling.
