For a long time “spot” was the dirtiest four-letter word in freight. Loads went to load boards and brokers after every carrier in the shipper’s routing guide had given them a pass. The spot market meant volatility, unscrupulous players, and deal-of-the-day pricing.

It was also inefficient. My first foray into freight brokering in the early 1990s meant countless phone calls and reams of carrier faxes strewn all over the dispatch office floor.

Technology and the gig economy are changing that.

Today’s load boards—public and private—are all digital. Lots of savvy small carriers, especially newcomers, are booking freight online instead of over the phone.

There’s still chaos. Spot rates have been tumbling all year while contract rates, driven by high fuel surcharges, have stayed elevated. There are plenty of scoundrels trolling the load boards: double-brokering becomes an industry unto itself when business gets soft.

Today’s market has some unique dynamics. Here’s what you should know.

Spot vs. Contract Rates  

According to Loadlink Technologies, spot rates are down 20% year over year and a whopping 7% from August to September. The U.S. market has declined even more.

At the same time, fuel prices have spiked and surcharges have almost doubled.

In the past, shippers would leverage their volume to get committed capacity and the best rates. In many lanes (especially cross-border lanes) the arbitrage between the two markets is staggering. Contract rates can be 100% higher.

As shippers tighten their belts, the lure of low spot rates will be hard to ignore and they’ll pressure their contract carriers to bridge the gap. Freight brokers could have a field day.

Small Fleet Struggles

The pandemic was like winning a lottery for small carriers in the spot market. Hard not to make money when you can charge $6 a mile.

My, how things have changed. 

It’s hard to make ends meet in a low-rate, high-cost environment. Spot rates are “all in” rates—there is no separate fuel surcharge—and many small carriers lack the discipline to negotiate spot rates that recoup their fuel costs. One week they’re running to California, the next to North Carolina. Their rates get cheaper as the week goes on.

Frankly, I think many small carriers will need help from Harry Houdini to survive.

Their struggles will present great acquisition opportunities. Acquirers with strong balance sheets may not need the capacity today but will want to be ready when the pendulum swings back in their favor.

Shifting Dynamics

One interesting dynamic on the load boards is the sudden presence of large contract carriers. I cannot remember the last time I saw this.

It will put further pressure on small fleets that now have to compete for freight with the top brands in the industry. It also makes me wonder about contract carriers’ direct customers. Even though shippers don’t have access to load boards, news travels fast when competition is so fierce.

What are carriers going to say if (when) their customers find out they’re moving freight on the open market for half the price of their contract rates? I’d love to see that tap-dance act.

Two in One

Speaking of contract carriers, they all have brokerage divisions that rely on the spot market to move freight. Generally, for a lot cheaper than they can on their own trucks.

Having asset and non-asset operations in one business can cause a dilemma when freight gets scarce. I lived it firsthand at MSM Transport during the great recession 15 years ago.

We made the mistake of cherry-picking business from our brokerage division. We needed to move our trucks but there was zero chance we were doing it for those stupid rates. Unfortunately, this was at the expense of our sales reps, who were paid a commission on the operating margin. We had a mutiny that even Harry couldn’t have stopped. It resulted in some unexpected resignations at the wrong time.

The spot market is a pressure-relief valve when times get crazy. But if spot is all you do, the pressure is as high as ever. Rates will cycle back up but not in time for everyone. Here are two more four-letter words for you: good luck.