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What’s the Difference Between a Contract Rate or a Spot Rate?

When transferring something via freight, you’re usually given either contract rates or spot ratesContract rates or spot rates are very different and are used for different things, which also explains why they vary so significantly. Let’s take a look at contract rates vs. spot rates and when you might prefer one over the other.

What is a Contract Rate?

During a contract, you make a deal for a specific route over a certain period. So, a contract could govern travel back and forth on a route for three months. Contract rates tend to be far less expensive per transfer than spot rates, but the contract has to be fulfilled; it’s only good if you’re going to be repeatedly shipping goods over a specific area. Once the contract is out, it will also need to be renegotiated. It can be in your best interest to have a lengthy contract term.

What is a Spot Rate?

A spot rate is a one-shot rate for a freight shipment that does not occur on a regular basis. It’s going to be more expensive than a contract rate, for the most part, because it is negotiated and paid once. But it also means that you’re not going to need to sign up for a contract; you only send items once and pay once. If you send things regularly but infrequently, a spot rate can still be better. It’s a good idea to run the numbers and compare both contract and spot rates.

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Should You Get a Contract or Spot Rate?

Luckily, though contract rates and spot rates might differ, it’s usually fairly obvious which one you need But you should be aware that negotiating is even more important with contract rates, depending on the length of the term. While you may want a longer term (to lock in your rates), you might also want a shorter term (so you’re not required to continue your freight shipping). And if you only need something once, a spot rate is going to be best.

Trucking Insurance and Freight

Regardless of how you ship your freight, you’re going to need trucking insurance. Your trucking insurance will cover your contract rates or spot rates, depending on the type of insurance coverage you get. It also depends on what you’re shipping and the distance you’re shipping. You should always get an insurance quote with your insurance company before you start shipping, as your own insurance company may be able to give you a better rate.

Regardless, both contract rates and spot rates can suit your company, and there may be times when you have both contract rates (for long-term long-haul) and spot rates (for short-term and for hot shots). A spot rate is going to be more expensive but will also be able to deliver faster, whereas you may find that your contract rates have you waiting longer for your goods to be delivered because you’re going to be getting them delivered on a schedule.

Contract rates and spot rates are all about saving money. In the trucking industry, it’s always better to negotiate. In addition to negotiating your contract and spot rates, you should also be checking in on your insurance.