The broad term “spot market” describes transactions carried out for immediate payment and delivery. In logistics, "spot market” refers to the market for transportation services arranged on short notice, or in other words, “on-the-spot".
The rates applied to these ad-hoc shipments are called spot rates. These are one-time fees that reflect the market rate and conditions. This differs from contract rates, which are pre-determined rates that reflect the long-term collaboration between the shipper and the carrier.
The freight-to-truck ratio is the principal factor affecting spot rates, an indicator of supply and demand. On the spot market, only a certain number of shipping vehicles are offered daily. Heightened demand prompts shippers to bid for transportation services competitively, thus driving up prices. For this reason, spot rates tend to be considerably higher than those negotiated under contractual agreements.
Spot rates are also affected by other factors, such as fuel costs, route, and distance, the type of cargo, and different transportation modes.
Resorting to the spot market is a great solution for last-minute shipments that must be delivered quickly, typically within a few days. It is also a viable option for small shippers with insufficient freight volume for contract rates.
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