AskWaves: What is a spot trucking rate? What is a trucking contract rate?
The spot market is a small part of the overall freight market. However, the true size of the spot market is incredibly difficult to pin down. Some estimate it at only 10%, while others take a more generous estimate of a third of the total market. The reason it is so difficult to estimate is that the definition of the spot is often left to the performer.
While most merchandise is delivered within days of when pickup is needed, most rates are determined months in advance. When rates are determined at the same time as the offer (or within about a day), one might suggest that this is a spot rate. When a tariff is generated without taking into account a specific call for tenders, often months in advance, the charge is considered a contract rate.
The futures contract rate is misleading. To a foreigner, the word contract rate suggests that this is a binding contract, a situation in which if the rate is not honored, you could sue the other party. This is not how it works. Often, contractual rates are given with the best intentions of both parties. But each party has the right to take this rate, reject it or increase it. There is nothing fixed in all of this, outside of the dedicated contract market.
Either way, most of the rates are fixed for a certain period of time. Even if the cheapest carrier rejects a load and goes to the next carrier in line, the rate paid by the shipper for the freight has probably increased, but the shipper is said to still operate in the contract market, both that the tariff is to pay the second carrier has been agreed well in advance.
This is why bid rejection indices are so important. Offer rejection occurs when a trucking company receives a request for capacity but rejects it. Often the shipper will then send a request for quotation to another carrier, the second in line. If that carrier also rejects it, the shipper tries the third, fourth, fifth, etc. until the sender has exhausted their options in the routing guide.
At this point, the offer is sent to the spot market, where it is then listed at around the same time it is tendered. If you see an increase in the bid rejection index, you know that carriers are more selective and have other options for their capacity. A declining bid rejection index means that carriers are less selective and more willing to accept the freight offered to them.
You can use this to your advantage. If you are a shipper, it is advisable to try to be more flexible with the times and requirements of a load. If you are a broker it is advisable to pad your quotes with more margin than the rate indices suggest and if you are a carrier it is advisable to quote more on a load.