How did the COVID-19 pandemic affect shippers' decisions as to whether to pursue contract or spot rates in the truckload market? And what's the trend today? Chris Caplice, chief scientist with DAT and senior research scientist at MIT's Center for Transportation and Logistics, has answers.

The period following the worst of the COVID-19 pandemic saw an uptick in the use of spot rates for shippers booking truckload transportation. That followed a span in 2019 when spot rates inverted, dropping below contract rates.

The truckload market seesaws between periods of tight and excess capacity, Caplice says, all of which dictates the degree to which shippers prefer spot rates. But the picture is more complicated than it might seem at first glance. There are different kinds of spot rates, he says — some the result of a failure of the routing guide to produce acceptable rates, and some sought by shippers without first referring to the routing guide at all.

“All lanes are not equal,” Caplice notes, adding that contract rates are more likely to fail on lanes with very low volume that actually make up a majority of the total lanes in a freight network. “Why am I putting a contract rate on lanes that are going to fail anyway?” he asks. “Why am I spending all this time setting up a contract, when half the time the lanes don’t even materialize in the next year? Maybe I handle those in a different way.”

In a market of tight capacity, one expects to see carriers’ acceptance rate drop, because they have more options. There, says Caplice, it might make sense to rely more on spot rates. 

Spot rates aren’t always the result of last-minute decision-making. They can be deployed by shippers in a strategic manner, Caplice says, even as part of “dynamic” contracts that allow for some level of discounting in accordance with a third-party rate index.