View all Posts Supply Chain Costs , Transportation Network , Supply Chain Strategy

Your Solution to the Spot vs. Contracted Freight Dilemma

There are many hidden costs of a spot-market based transportation strategy. A custom-tailored transportation network cuts costs and brings more value to you.

For the past few years, carriers have had the advantage over shippers. Reduced overall capacity, quickly changing conditions from COVID, energy prices and politics have made it tough to secure transportation—let alone get a deal on it.

As a shipper, you might now feel a certain glee as the contracting freight market’s metaphorical shoe switches feet. Industry tracker Freight  Waves reports that carriers are learning to accept loads at prices they would have scoffed at not long ago. A slower economy equals desperate carriers fighting over less freight. So, it’s an ideal time to head to the spot market and save some cash, right?

Not so fast.

While shippers will always be tempted to shop for bargains on the spot market, history shows it’s rarely the best idea compared to contracted freight. Start with the price: It's sort of like the stock market. We all get excited by the cocktail party stories about buying Facebook shares in 2012. Fewer people brag, though, about hanging on to those shares in 2022 as the renamed Meta stock has lost more than half of its value.

Simply put, it’s impossible to win over the long term by trying to time the market. There will be a few winner spot rate days. But, over the long term, they get swamped by the losers. It’s a historical fact that contract transportation rates, like boring index funds in the stock market, win out.

To make matters worse, there are numerous hidden costs and disadvantages to a spot-market based transportation strategy:

  • You’re forced to negotiate for price at each moment you need services instead of bargaining ahead of time when you have more leverage.
  • In dynamic markets (like pretty much every day of the last few years), shippers can run into absolute unavailability of spot transportation. That can affect everything, from how long it takes to get the product to market, to costs of raw goods and manufacturing.
  • There’s a lot of management and operations cost involved in running constant competitive bids, evaluating multiple carriers and tendering freight in constantly changing ways.
  • Fixed contracts enable shippers to negotiate fuel surcharges and accessorial charges that are built in to spot rates as non-negotiable items.
  • Multiple and unknown carriers expose shippers to risk for damages, inconsistent on-time performance and legal compliance.

It’s tough to manage budgets and tougher to maintain carrier scorecards in a spot-driven supply chain.

At Morgan, we’re experts in custom-tailoring transportation networks for our manufacturing clients.*

Because every supply chain is unique, each engagement starts with a deep analysis and understanding of the customer’s needs and priorities. Then, we design the best overall system for stability, quality and—yes—price, based on those objectives.

We can provide dedicated transportation, and contracted freight service through trusted partners or our own network—and even the occasional spot transportation where atypical or low-volume requirements support that model. If you’re interested in designing a transportation network that’s built right, not just for right now, we’d love to talk.

*In fact, two of Gartner’s “Supply Chain Top 10” global manufacturers rely on Morgan to custom-tailor their transportation networks.

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