Credits: Ishant Mishra
Spot-buy freight, spot freight, spot bidding… We hear and use those words every day but today let’s really talk about it. Let’s see the advantages and understand why it has sometimes been taboo or a synonym of lack of organization.
Let’s maybe start with the basics, there are 2 main freight families:
Regular freight (from 85% to 95% of transports)
→ yearly / long term RFQ with volume guarantees and fixed schedules
Non-Regular freight (from 15% to 5% of transports)
→ 100% spot buying
→ negotiated reference price depending on capacity
→ negotiated price depending on capacity
→ yearly / long term RFQ*
* usually it comes with an exclusivity (shipper can only buy from 1 carrier) and order obligation (carrier must always execute the requested shipment at the requested price)
A bit of history on spot buying
Traditional logistics organizations pretend to have 100% regular. Lean organizations have achieved to demonstrate that it was not only impossible but also more economical to find the right balance between ‘non-regular transport’ and hidden costs such as warehousing, production disruption, quality issues, product recalls, or late product deliveries.
Once an organization has accepted the exception as a ‘niche norm’ it decides to master it. “We only manage what we can measure”, what we have defined and followed. This is how spot buying was born, it’s often the most economical approach to face non-regular freight.
At Easy4Pro we will allow our users to execute all procurement strategies, especially the 4 of non-regular freight.
Zoom in to spot buying
Shipments that use ad-hoc or spot-buy rates to transport freight are known as spot-buy freight. These rates are usually negotiated "on the spot" between a shipper and a freight forwarder for a single shipping request regardless of any existing rate agreement.
For regular shipments, the majority of shippers will tender their freight volumes on a yearly basis. As a result, they settle on a fixed rate for a certain time period based on projected volumes. However, due to unexpected conditions, this might not always be so. Consider shipments to or from potential customers or vendors, replacements, increased demand, longer transit times, quality issues on stock, facility updates, or returnables. Those would be subjected to a spot-buy freight. There are many businesses that refuse to or actually cannot negotiate on agreed rates due to the nature of their industry. Companies that work with project freight, odd-size cargo, or logistics systems tailored to the specific shipments, for example.
Spot-buy prices are compared based on a number of considerations, the first of which is the rate itself. However, in some situations, the cost may not be the most important factor; other considerations such as transit time, routing, additional facilities, or even the relationship between the shipper and the logistics provider may have a greater effect.
Spot-Buy Rates are determined by a number of factors. The final quote you get is influenced by a number of variables.
Lead and Transit time: Is it a daily or express service, and how long will it take? If you need a rate right now or later in a week or two?
Freight mode: road vs. air, air vs. ocean, and so on.
Capacity: Is it, for example, peak season?
When it comes to frequency: Do you go for ad hoc low volume or daily bulk?
Competition: Is there any incentive for (multiple) parties to compete?
Relationship: Is your partner a regular or an exceptional case?
Other services: Customs clearance, packing, and other services are available.
Spot-buying can be used for any type of logistics operation. Road, air, ocean, rail, and parcel delivery are the most common logistics services.
Editor’s note
At Easy4Pro we don’t pretend to know it all, but you can be sure we work every day to learn and improve. So if you have any comments or improvements you would suggest to this article, do not hesitate to write to us: communication@easy4pro.com. Are you interested in learning more about spot-buy freight? Request a demo with Easy4Pro today!