A spot rate is the price quoted to transport a shipment from point A to point B at a given time, on a specific lane, in this case by truck, and depending on numerous factors such as weight of load, overall space needed to carry the load, distance to be traveled, any non-standard shipping conditions of the load, and others. It may be trucked by dry van, refrigerated trailer or flatbed and be truckload or less than truckload and will usually require designated loading and unloading appointments.
Spot rates can vary widely at times and can even experience volatility in a period of a single day or longer. Rates are generally a product of supply and demand and freight conditions. If the supply of trucks is low for a given lane and demand for loads is high, rates go up. But if trucks and drivers are plentiful and loads are few, rates go down. This is known as the load-to-truck ratio and is a key indicator of spot rates.
Spot rates are primarily offered by shippers or brokers on behalf of shippers and cover single trip loads. Due to the inherent volatility of spot rates, many owner operators and fleets choose a preferred business model to provide stability and predictability to their operations. They accomplish that by securing a contract or contracts with customers. A contract lasts for a fixed period and has a steady price per load. Contracts are agreed upon and usually run for a 12-month duration, at which time they can be renegotiated by the parties to the contract or dropped by either side.
The difficulty for truckers with contracts comes about when spot rates light up and rapidly increase offering money-making opportunities to any trucker not locked into a contract. Temptation abounds and non-drivers join the ranks to take advantage of high spot rates. Unfortunately, many drivers consequently leave trucking when rates fall and end up looking for other work. Such can result in another black eye for the trucking Industry, especially if some of the new drivers have rushed through training and are inadequately prepared for the road in pursuit of high spot rates. That can be downright dangerous to all on the highways and to cargo and may even extend to supply chains.
If you plan on becoming a truck driver or owner operator, before you do so, investigate the above business models, learning about the pros and cons of both so you can make an informed decision on which model you will operate within. Next, consider whether you want to work for a fleet or become an owner operator.
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