Global shipping is a dynamic industry, meaning those involved in it have wide-ranging and often complex requirements. As such, a variety of different types of shipping have evolved to meet these needs. In this article we take an in-depth look at one such type of shipping as we ask ‘what is spot shipping?’
Spot shipping (also known as spot freight or spot-buy freight) is the price offered by a carrier or logistics company to ship freight from one location to another at a specific point in time. It is called spot shipping because the transaction is carried out ‘on the spot’.
Spot shipping is a one-time shipping solution, making it different from long-term or regular contract shipping. Used across all industries of all sizes around the world, this transport solution is best-suited to ad hoc, sudden, or urgent shipping requirements and accounts for approximately 15-20% of total freight operations.
What does spot business mean?
Let’s look at what spot business means, and how it is different to a spot market. In the context of global shipping, ‘spot business’ refers to a specific transaction where goods are shipped and delivered at short notice and without a pre-arranged contract or long-term commitment between the shipper and the carrier. Meanwhile, the term ‘spot market’ refers to the financial marketplace in which the purchase of immediate or short-term transportation services take place. Put simply, spot business takes place in the spot market.
What is a spot market?
A spot market is a financial market where financial instruments (e.g. commodities, currencies, or securities) are traded for immediate delivery. In other words, it is the place where deals are made ‘on the spot' for a product or service (i.e. a cash payment is processed immediately and there is a physical exchange of assets right now, although the official transfer of funds may take a day or two). Spot markets are also sometimes called cash markets or physical markets due to the nature of transactions they facilitate.
What is the difference between spot shipping and contractual shipping?
There are several key differences between spot shipping and contractual shipping. Let’s look at some of the ways in which spot shipping is different from contractual shipping, and what this means for their suitability for various shipping scenarios:
- Flexibility
Spot rates offer more flexibility than contract rates. - Terms of agreement
Spot rates are negotiated and agreed on a shipment-by-shipment basis. On the other hand, contract rates are negotiated and the terms of the agreement are then fixed (usually for one or two years). - Pricing stability
Spot rates can vary considerably over time. They are influenced by a range of external factors and general market conditions, making them unstable. At the other end of the spectrum, contract rates offer a lot more pricing stability as they are fixed for the duration of the contract.
These differences make spot shipping and contractual shipping better-suited to different circumstances and scenarios. For example, spot rates are a good option for ad hoc, unexpected, or one-off shipments, whereas contract rates are a good fit for regular cargo shipments.
What are the advantages of spot shipping?
The key features of spot shipping offer a number of advantages, including:
- Increased flexibility
Businesses can opt for the best available rate as/when they have shipping requirements, because they are not locked in to a contract. The flexibility of spot shipping empowers organisations and supply chains to adapt to the ever-changing demands of the marketplace in which they operate. - Potential cost savings
Spot shipping rates fluctuate considerably according to supply, demand, and other market conditions. Businesses can monitor market conditions and, during periods with low demand and high carrier availability, reduce costs by securing a spot rate that is lower than contract rates. - Faster and more responsive
Spot shipping is a great option for one-off, ad hoc, or unexpected shipping requirements. In particular, it can help companies deal with sudden surges in demand and ensure they can meet increased orders at short notice. Given that spot shipping involves direct liaison with the carrier themselves, it can also be a great option for businesses needing a fast transport option for time-sensitive shipments. - Low commitment
Spot shipping is arranged on a shipment-by-shipment basis, meaning there is no long-term commitment. As such, it is a great solution for companies looking to test a new shipping route or carrier. Likewise, spot shipping’s low-commitment level makes it attractive for companies with irregular or low-volume shipping requirements.
When we look at the combined benefits of spot shipping, we can see that it can offer a potential competitive advantage. In today’s dynamic marketplace, there are always various challenges and opportunities, such as supply chain disruptions and changing customer demands. Spot shipping enables businesses to respond more quickly to these changes, potentially helping them to win new business, or retain existing customers by better meeting their needs.