Use of Spot Pricing vs. Contracts in Freight Management

Posted on September 29th, 2014 by Ed Blickstein

Is There a Case for Using Spot Pricing vs. Contracts?

This article was written by an old friend and colleague who actually was my mentor as well for my partner, Bob Schaffer, in the field of consulting over 20 years ago, his name is Tom Moore. Article submitted by Ed Blickstein with Tom’s permission.

Yes to spot pricing – No to contracts:

  • Generates higher probability of getting equipment – carriers want price
  • Will cost less in bad times (contracts never time the “bottom” of the market perfectly)
  • Allows carriers to increase their wages, for example, to get more drivers
  • Keeps carriers in business as price > cost

No to spot pricing – Yes to contracts:

  • How do we determine the spot price – is that for brokers to do?  If so, we know we’ll pay more
  • Contracts provide base business and a feeling of commitment/partnership and price certainty (for a year – but equipment is bought with a 3-7 year life)
  • Carriers want guarantees
  • Price certainty

 

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