Falling Spot Rates: How to Plan in a Fluctuating Environment

Industry experts and analysts predict falling spot rates for containers and trucking, seemingly as due to a global decrease in demand. Trucking spot rates decreased by over 20% during the first six months of 2022, and many ocean freight sources have reported a similar trend. As a result, shippers are now renegotiating long-term contracts with carriers in favor of spot rates. All of this will likely continue into 2023.

The primary factor for the fall of spot rates is decreased consumer demand—with reduced shipping volumes and inflation as other indicators of an ongoing shift. Consumer spending has been falling in the US for several months now, and shippers are hoping to celebrate what may be the only positive result of that trend.

Adjusting to post-pandemic demand fluctuations

At the height of the COVID-19 pandemic, an unexpected surge in demand led to an extended prevalence of high-price, long-term freight contracts. Limited carrier capacity and inventory shortages were high. Shippers scrambled to sign for record-high contract rates with container ships. 

With the recent fall in demand and subsequent steady fall in spot rates, many companies are breaking those long-term contracts with carriers in favor of falling spot rates. This decrease is positive for shippers, but spot rates are still significantly higher before the pandemic. Shippers also can’t reap the benefits of the fall in spot rates unless carrier fuel surcharges also decrease, seemingly unlikely as diesel prices continue to rise.

As spot rates fall for months onward, the trend will likely expand to long-term contracts, but it may be a while before contract rates can compete with the pricing of spot rates. Even with a decrease in spot rates, slightly higher contract rates can still be favorable when contracted carriers guarantee space for shippers to meet their volume. To make the most of this, shippers need access to all options to ensure they aren’t paying too much. 

How shippers can plan for when spot rates fall 

A robust TMS allows shippers to compare spot rates using forecasting analytics to strategize when and whether a long-term contract is a wiser investment for managing their volume. The lowest rates are not always the best option, and shippers must determine how to keep costs down while making their deliveries on time. 

Spot rates fall quickly, so shippers need to be as accurate as possible with their shipment information, especially non-standard freight information. Long-term contracts can provide for freight details changes, while spot quotes are subject to the market whims of a fast-changing economy. A robust TMS can help shippers easily compare the options. If the quote for a recurring shipment is changing, a strong logistics platform will track those changes and enable shippers to hold carriers accountable. 

Visibility makes the difference for falling spot rates

Spot rates are falling and will likely continue to fall into the next year, but they are still high compared to what they were four years ago. Long-term contracts will always have their place for managing high volume, and with a strong TMS, shippers can decide how to engage with these falling spot rates. 

CTSI-Global offers relationships with 20,000 carriers and60 years of data analytics, all continuously updated and organized by the Honeybee TMS™. With robust logistics and an organized management platform, shippers can easily compare rates without sacrificing the quality of their deliveries.

Contact  CTSI-Global today to find out about how to navigate falling spot rates.