Opportunity and Uncertainty: A Shipper's Guide to the Spot Market
Spot transportation has become an essential element in the transportation market landscape. Shippers appreciate the expedient addition of capacity, whereas carriers leverage the spot market to increase efficiency on short notice. Notwithstanding its apparent simplicity, the procurement of spot transport necessitates meticulous preparation, encompassing technical aspects but also regarding the mindset of market participants. Moreover, the increasing use of spot transportation requires real-time information and proper tools for rapid and cost-effective application. This article elucidates the essential elements to ensure potential benefits do not transmute into pitfalls when engaging on the spot market.
In principle, every transport can be executed as a spot transport. Given the myriad of options, shippers are advised to judiciously identify transport engagements suitable for the spot market. Potential spot transports exhibit varying characteristics, such as predictability, disposable lead-time and potential price elasticity. Consequently, shippers need to deem, whether such transports are suitable for the spot market and ascertain their alignment with the shipper's procurement strategy and objectives.
The ensuing table delineates transport types appropriate for spot market utilization.
Source: Own illustration
The strategic rationale for engaging the spot market varies. "Planned" utilization often targets low-volume or geographically dispersed lanes where tendering may yield unfavorable rates due to limited carrier interest or inconsistent demand patterns. Strategic spot allocation involves deliberately reserving a portion of anticipated volume for the spot market, allowing shippers to potentially capitalize on favorable short-term market conditions on specific trade corridors.
A classic need for “unplanned” spot transport occurs in case the primary carrier rejects a contracted transport. Unexpected transports may arise on contracted lanes, when tendered volume underestimated actual demand, necessitating supplementary capacity. Similarly, newly identified lanes absent during tendering fall within this category.