Spot rates and contract rates are the two pricing mechanisms in ocean freight. Every customer quote uses one or the other. Most pricing desks default to spot for everything — which is the right choice for most enquiries but the wrong choice for high-volume, long-term customers. The ability to quote both correctly, and to know which one a customer needs, is a foundational pricing desk skill.
Spot rates: definition and characteristics
A spot rate is a one-time, market-reflective price for a specific shipment or set of shipments, valid for a short period. Key characteristics:
| Characteristic | Detail |
|---|---|
| Validity | 7–30 days (typically 7–14) |
| Volume commitment | None — the customer can accept or decline |
| Rate determination | Current market rate for the carrier and trade lane |
| Flexibility | Maximum — each quote is independent |
| Rate risk | Customer bears it — rates change with each quote |
| Best for | One-off shipments, uncertain volume, infrequent customers |
When to quote spot:
- First-time customer or irregular shipper
- Customer who ships 1–2 containers per month without predictable timing
- Cargo with uncertain delivery window (customer doesn't know the exact ship date yet)
- Market rates trending down — locking a customer into a contract at current high rates damages the relationship
Contract rates: definition and characteristics
A contract rate is a negotiated price valid for a fixed period (3–12 months), in exchange for a volume commitment from the customer. Key characteristics:
| Characteristic | Detail |
|---|---|
| Validity | 3–12 months (typically 6 months for NVOCCs) |
| Volume commitment | MQC — minimum quantity commitment per month or quarter |
| Rate determination | Negotiated based on committed volume and market forecast |
| Flexibility | Limited — customer is committed to volume with the carrier |
| Rate risk | Shared — the forwarder (or carrier) bears rate risk for the validity period |
| Best for | Regular shippers, predictable monthly volume, customers with budget planning needs |
When to quote contract:
- Customer ships 3+ FCL per month on the same trade lane
- Customer needs rate certainty for annual budget planning
- Market rates trending up — locking a contract now protects the customer from future GRIs
- Customer has asked for a "fixed rate for the year" or equivalent
The margin model: how spot and contract rates differ
The margin structure differs between spot and contract bookings.
Spot margin:
- Applied per quote based on the current carrier rate
- Can vary by quote (you may apply a higher margin during tight capacity, a lower margin to win a new customer)
- Calculated as percentage of all-in carrier cost or as a fixed dollar amount per container
- Changes with each new quote — if the carrier rate rises, you re-quote at the new rate with your margin on top
Contract margin:
- Fixed margin embedded in the contracted rate for the validity period
- The carrier rate is fixed (or partially fixed) — your margin is agreed upfront
- Risk: if the carrier charges you more than the contracted rate (e.g., an emergency surcharge), you absorb the difference
- Advantage: predictable margin per booking for the entire contract period
Related: The ocean freight quotation workflow: from enquiry to customer quote — the full step-by-step quoting process.
Surcharge treatment: fixed vs variable
This is where most contract rate disputes originate. When quoting a contract rate, you must specify which surcharges are fixed and which are variable (adjusted with market changes):
| Surcharge type | Typical treatment in contracts |
|---|---|
| Base ocean freight | Fixed for the contract period |
| BAF | Variable — updated monthly or quarterly |
| LSS | Variable — updated quarterly |
| THC | Fixed or variable depending on the agreement |
| GRI | Typically excluded — passed through if activated |
| PSS | Typically excluded — passed through if applicable |
A common structure: "Base rate fixed for 6 months. BAF variable monthly per carrier schedule. All other surcharges at prevailing rate at time of B/L issuance."
If a contract says "all-in fixed for 12 months" without specifying surcharge treatment, you are exposed to any surcharge increase over the contract period. Always define surcharge treatment explicitly.
Volume commitment and shortfall
A contract rate is inseparable from a volume commitment. The customer commits to shipping X TEU per month (or quarter). The carrier (or you, as an NVOCC) provides the rate on that basis.
What happens on shortfall?
- Hard MQC: Customer pays a penalty for not meeting the commitment (typically the rate difference between the contracted rate and the spot rate at time of shortfall, times the shortfall volume)
- Soft MQC: Rate rises to spot if the commitment is not met — no explicit penalty, but the customer loses the contracted rate protection
- Best efforts: No formal commitment — customer intends to meet the volume but isn't contractually obligated. Common in smaller forwarder-customer relationships
For small and mid-size shippers (less than 20 TEU/month), soft MQC or best-efforts structures are more practical. Hard MQC is only enforceable when the relationship and volume justify formal documentation.
Quoting both on the same enquiry
A common and underused practice: quote both a spot rate and a contract rate side-by-side when a customer is clearly shipping regularly.
For a customer shipping 5 × 40'HC per month on INNSA → AEJEA:
| Option | Rate | Validity | Commitment |
|---|---|---|---|
| Spot (current) | $1,380/40'HC all-in | 10 days | None |
| 3-month contract | $1,290/40'HC all-in | 3 months | 4+ containers/month |
| 6-month contract | $1,240/40'HC all-in | 6 months | 4+ containers/month |
The customer sees the value of commitment clearly. You win either a booking at spot or a 6-month revenue stream. The savings for the customer on the 6-month vs spot are $140/container × 5/month × 6 months = $4,200 in freight cost savings — a compelling reason to commit.
How to track both quote types on a pricing desk
Your quote log should distinguish spot from contract from the start. Fields to track:
- Quote type: Spot / Contract / Spot with Contract Option
- Contract period (if contract): start date, end date
- MQC (if contract): committed containers per month
- Outcome: Accepted (Spot) / Accepted (Contract 3M) / Declined / No response
- Margin: actual margin per container at booking
Win/loss analysis by quote type answers a critical question: do you convert contract quotes at higher rates than spot? If so, you should be proactively offering contract options to more customers.
Frequently asked questions
What is the difference between a spot rate and a contract rate in ocean freight?
A spot rate is a one-time rate valid for 7–30 days. A contract rate is a negotiated rate valid for 3–12 months in exchange for a volume commitment. Spot rates are flexible but variable; contract rates provide price predictability with volume commitment.
When should a freight forwarder quote a spot rate vs a contract rate?
Quote spot for one-off or occasional shipments, customers without committed volume, and when market rates are likely to fall. Quote contract for customers with predictable monthly volume (3+ FCL/month), customers who need price stability, and when market rates are trending up.
How long is an ocean freight spot rate valid?
Spot rates are typically valid for 7–14 days. During volatile markets, shorten to 7 days. During stable markets, 30-day validity can be offered.
What is a freight contract rate agreement?
A contract rate agreement fixes the ocean freight rate for a specific trade lane and container type for 3–12 months in exchange for a minimum volume commitment. It specifies the base rate, surcharge treatment (fixed vs. variable), MQC, and consequences for shortfall.
What happens if freight market rates fall below a contract rate?
The customer may request renegotiation. Most long-term freight relationships involve informal renegotiation when the market moves significantly. Structuring contracts with a quarterly rate review clause protects both sides from sharp market movements.