Whether ocean, air, or land freight, every new or repeat shipment forces shippers to negotiate carrier prices or use spot shipping rates. The decision is extraordinarily complex, with vital profit implications. At a time when shipping budgets are tight, crucial savings with sound decisions about rates is what shippers truly need.
Volatile market conditions are the reality of today’s economy—from rising prices to material shortages. Hasty decisions between contract and spot rates force shippers to choose overpriced options and face heavy blows to the bottom line. A methodical approach is necessary for making the most of total shipping spend. Shippers must negotiate purchase terms and consider the current demand for containers and truckloads.
Spot shipping rates vs. carrier rates: key considerations
The strengths and weaknesses of contract rates and spot shipping rates are varied. Spot prices depend on current economic conditions, while contract rates rely on negotiations. Careful calculation and innovative technology allow more intelligent decision-making for carrier pricing and upgrade contract workflows.
- Contract negotiation capabilities
Despite a shipper’s good intentions, the best carrier contract rates are only possible through robust negotiation. Shippers need automation to conduct quick, complex negotiations with complete oversight to achieve favorable pricing. Without visibility into contract terms and other vital capabilities, shippers go to the spot market for rates that are most likely higher than negotiated rates.
Negotiation support offers an analysis of pricing considerations and important savings areas like accessorial charges, which can account for as much as 40% of FedEx, DHL, and UPS invoices. Shippers can also reduce or eliminate trends and common costs in negotiations using audit and payment solutions.
- Up-to-date spot rates
Spot prices change quickly, increasing with global demand for containers and carriers, customer spending, and other economic factors. Spot quote utilization analysis compares spot quote costs with contract rates across widespread shipments to understand how they affect profits, minimizing future freight expenses.
In 2022, spot rates for trucking and ocean freight took a dramatic dive, falling as much as 20%. Without an accurate picture of today’s spot rates, shippers could miss out on an opportunity to select this lower-priced option. Visibility into spot costs allows shippers to compare spot quote costs with contract rates across widespread shipments to understand how they affect profits and minimize future freight expenses.
- Long-term contracts
A decision between spot shipping rates and contract rates is relevant for new purchase orders and existing long-term contracts. Contracts with long time horizons can be beneficial for high-volume or complex orders. Still, when market conditions change, it’s a good idea to consider renegotiating these to access lower rates.
For example, given the projected continuation of low spot rates through 2023, many shippers may seek to renegotiate long-term carrier contracts in favor of these less expensive rates.
Update logistics tools to upgrade carrier decisions
With carrier pricing, it is essential to remember that one size does not fit all. No matter the purchase order, the choice requires consideration about the best option for carrier relationships. Informed decisions bring cost savings that quickly add up to considerable profit boosts, which is pivotal in an adverse economic environment.
CTSI-Global’s Freight Audit and Payment solution helps shippers incorporate vital pricing considerations into standardized logistics workflows without overwhelming supply chain managers with extra tasks. Logistics technology provides benchmarking capabilities for multimodal transport, so logistics teams can understand market dynamics and improve future carrier rate negotiations. It gives shippers visibility into the short-term and long-term spot rate market, allowing them to determine when to deploy spot shipping rates over contracted prices.
Contact CTSI-Global today to inject strategy into future contract negotiations for crucial cost savings.