Contract Rate

A contract rate is a pre-negotiated freight rate agreed upon between a shipper and a carrier for a specified lane and service level, typically valid for a period of 6 to 12 months. Contract rates provide price stability for the shipper and volume commitments for the carrier, creating a mutually beneficial arrangement that reduces the uncertainty of spot market pricing for both parties.

Contract rates are established through an annual request for proposal (RFP) process in which shippers provide their projected shipping volumes, lane data, and service requirements to carriers, who respond with pricing proposals. The negotiation considers factors including the shipper's total volume, the balance of freight across lanes, the carrier's operational fit, equipment requirements, seasonality patterns, and the current market rate environment.

Contract Compliance and Mini-Bids

A critical aspect of contract rates is compliance, which measures what percentage of tendered loads the contract carrier actually accepts and covers. In the refrigerated market, primary carrier acceptance rates typically range from 70 to 90 percent, with the remainder falling to backup carriers or the spot market. Low acceptance rates undermine the value of contract rates and may indicate that the contracted rate is below market or that the carrier is over-committed.

Market conditions can cause contract rates and spot rates to diverge significantly. When spot rates rise well above contract levels in a tight market, carriers may prioritize more profitable spot loads over their contract commitments. Conversely, when spot rates fall below contract levels in a loose market, shippers may seek to renegotiate or divert freight to cheaper spot options. Maintaining fair and competitive contract rates benefits both parties by supporting consistent service performance throughout the contract term.