Contracted freight rates favor the shipper by providing predictable pricing and reliable capacity across the supply chain. Headaches come from having to search the market back and forth with each shipment, while contracted rates provide the carrier with the security of both the price and capacity. Most carriers are more willing to negotiate in exchange for guaranteed freight volume that is consistent.
Consistent freight volume enables companies to better organize their budget and forecast for the year. By having contracted rates, you can experience higher service levels; the more you work with a carrier, the more they get to know you and work with your needs. This builds a relationship for shipments to run smoothly.
Benefits for the shipper and the carrier that use the strategy of contracted rates are
- Increased level of priority during high-demand periods.
- Increased understanding and knowledge of your company’s process and use of your warehouses/facilities, which increases the flow and ease of your supply chain.
- Increased level of quality assurance leading to reduced risks in damages.
Contracted versus spot rates and which to choose?
While contracted rates offer you peace of mind for both parties, spot rates make up the remaining 20 to 30 percent of the trucking/freight market. Spot rates are constantly changing since they are determined by the oscillating truck-to-shipment ratio, which is influenced by the supply chain of the freight market.
As a shipper, you will want to be aware that spot rates are going to increase, especially in a situation of capacity. Alleviating risks of exposure, and those potential headaches that come with that, during the various supply chain cycles requires awareness, understanding, and experience of spot rate and contract rate strategies. InstiCo has all three, the awareness, understanding, and experience to give you peace of mind when choosing your rates.
