What Are Spot Market Rates?

Business

Chances are you’ve heard of spot market rates. The term has been tossed around a lot in recent years, mostly due to the increasing popularity of spot rate trucking work. Owner-operators and independent fleet owners who might have previously been avoiding the spot market in the effort to establish contract work have become more interested.

What Are Spot Market Rates?

In a nutshell, spot market rates in trucking are simply shipping prices that exist right now, today. They represent how much it costs to ship goods, freight and cargo if you were to get hired – on the spot. Spot market rates are usually paid by brokers, versus standard shippers you might otherwise contract with.

Spot market rates differ from contract rates in that they are not fixed, so they fluctuate from day to day, much more quickly than contract rates. The fluctuation in rates depends on a variety of economic and logistical factors, most particularly load-to-truck ratio.

If there are fewer trucks on the road during a given week, but a surplus of freight, spot rates go up. If there’s more capacity, rates go down. For much of 2017-2018, spot market rates ticked steadily upward, as truck shortages persisted in the face of high demand.

Spot rates are often measured daily or weekly by third parties but have been known to change hourly as well. They affect and are included in dry van, reefer and flatbed shipping.

How Does This Impact You?

Many trucker drivers and fleet owners prefer relationships with shippers and brokers where they can work out contracts quickly and then get on the road, month after month. Some work with spot market rates to fulfill capacity in between contracts, but many have never fully explored the topic.

As you probably know, 2018 was a banner year in trucking in the United States. A combination of economic growth, a continuing shortage of trucks, the ongoing growth of e-commerce and historic highs in agricultural exports led to the highest number of for-hire truck shipments ever, according to the U.S. Bureau of Transportation and Statistics. In the midst of all this growth, spot market rates reached highs of +22% over contract rates in 2018. That translates into a lot of earning potential.

Spot Market Rates Compared to Contracts

When you work with spot market rates, you deal with the volatility of shorter-term rates. This is compared to the longer-term commitment of a contract that won’t change as quickly or as severely as a spot market rate can. Contracts tend to be the slower-moving but steadier option.

The spot market in trucking isn’t as directly tied to the economy as the stock market, but it does fluctuate in a similar way that is usually still in line with certain overall economic trends. Spot market rates leave a lot of the future predictions out of shipping, bringing trucking back around to the more direct equation of immediate supply and demand.

Regardless of what you decide from day to day, it’s a good idea to consider how spot market rates can positively affect your bottom-line and future earnings, especially when compared to contract rates.