Contract Rate
A Contract Rate is a freight rate agreed and fixed for a defined period — often a year — under a service contract between a shipper (or forwarder) and a carrier, usually in exchange for a committed minimum volume. It gives both sides predictability: the shipper secures rate stability and priority for its cargo, and the carrier secures baseline volume.
Contract rates shield the shipper from spot-market spikes and reduce the risk of being rolled, which is valuable when capacity tightens — though when the market falls, a shipper may be locked in above the spot rate. Contracts typically specify volume commitments, the rate and surcharge structure, and terms on rolling, minimum-quantity commitments (MQC) and adjustments. Large shippers and BCOs rely heavily on contracts for their base volumes, topping up with spot for overflow. The balance between committed contract volume and flexible spot exposure — and negotiating strong contract terms — is a central element of freight procurement and supply-chain risk management.
When capacity tightens and spot rates spike, a contract rate is what keeps a shipper's cargo moving at a known price with priority — the stability that base-load volumes need. The trade-off is being locked in if the market falls. Getting the contract-versus-spot balance and the contract terms right is core to managing both freight cost and supply-chain risk.
Why choose a contract rate over spot?
For rate stability, priority and protection from spot-market spikes, in exchange for committing a minimum volume.
What is the downside of contract rates?
If the market falls, the shipper may be locked in above the prevailing spot rate, and must meet its volume commitment.