Spot Rates, Opportunities for Small & Medium Freight Forwarders and its Future

It is not an easy task to find the best freight quote in the market. Let’s talk about spot rates and how the opportunities that come with them can change your commercial process for good. 

What are spot rates?

Spot rates are used to set pricing for shipping freight. Typically valid for one shipment only and often restricted to a specific vessel. These rates fluctuate up and down by the day based on market conditions. Normally, they require commitment from the customer to make the shipment within a specific period, usually several days.

Customers will commonly use spot rates when they’re using services outside their contracted ones, for example, additional shipments or those with aggressive timescales for delivery. Also, spot rates can be used to secure space on the ship.

For further information you can read this article about Digital rates and shipping companies: the sea revolution

How are they determined?

Although spot rates are meant to represent the best rates that a client can get at a specific moment, that’s not always the case. Plenty of factors play into how much the customer might be quoted.

Some of the aspects that determine the spot rate the customer will be quoted are:

  • If there’s a pricing arrangement that the customer previously has with the service provider.
  • Type of container.
  • Gas prices and currency fluctuations.
  • The existing capacity of the vessel.
  • The urgency and speed required in transporting the shipment.
  • If they’re at peak seasons or if there’s any port congestion.
  • Equipment availability and type of service.

Here you can get more information about why are freight rates constantly changing

How are spot rates different from contract rates and when to use them?

There are benefits to both approaches. Spot pricing gives the clients flexibility, allowing them to purchase the service when needed, and guarantees space on the ship. Contract rates make it easier to manage shipping needs but will often require the client to commit to transportation minimums and don’t guarantee space in the ship.

If the client has infrequent or unpredictable logistics needs, then spot pricing is probably the best solution. When the client is a larger business that’s regularly making freight shipments, then it’s often a better idea to get long-term, pre-procured freight contracts in place. These will often allow the freight forwarder to set pricing in advance, which means the hassle of spot pricing can be avoided.

An opportunity for S&M Freight Forwarders

The good news is that all this chaotic situation can offer an advantage for Small and Medium freight forwarders since there is a platform like Cargofive that help them find the best quote in less time. By using Cargofive, freight forwarders can check spot rates without long and tedious processes and with the required anticipation necessary to obtain the best price.

What is the actual state of spot rates?

Freight rates have come down this year after soaring an unprecedented consumer demand during the pandemic. Still, we need to remember though that those rates are dropping from historical highs, returning to pre-pandemic numbers. Inside this picture, the losers are the freight forwarders that sell on the spot market because they have acquired space at a fixed and higher price from a carrier than they could by now.

Future of spot rates

There are reasons to believe that in the last quarter of the year an increase in the freight rates will occur, thanks to a growth in demand from the big retailers’ companies, due to an increase in consumer spending behavior. Trade routes are experiencing congestion, and freight forwarders are seeing freight rates go higher. Container congestion creates a false lack of available containers and pushes up prices. In recent events, spot rates have been scaling down. What remains to be seen is how strong or how weak the peak season will be.

How Cargofive can help you find the best rate instantly

A product like Cargofive allows freight forwarders to find the best spot rate the market could offer in real-time, which helps them to make decisions faster, with fewer mistakes, and optimizes their processes saving 90% of the time they would spend using the traditional way. Spot rates are very volatile in today’s market, so it is essential to have an immediate integration with the biggest shipping companies in the world. It can be challenging to estimate rates without accurate data-driven information. For these reasons, a tool like Cargofive can change the course of a freight forwarder’s business.