Splitting volume between spot buying and contracted rates

Two different bets on the same lane

A contracted rate buys price certainty and, on a good agreement, a claim on capacity, in exchange for a commitment to tender volume. Buying on the day keeps every option open and hands the price to the market. Neither is safer in the abstract; each is safe in one market and painful in the other. The useful framing is not which is better but which risk the firm can absorb. A business with thin reserves and contracted customer pricing cannot afford to buy short, whatever the current spot level suggests.

The squeeze that catches intermediaries from both directions

Sell long and buy short, and a rising market destroys the spread on volume already promised at yesterday's price. Sell short and buy long, and a falling market leaves committed purchases above what customers will now pay, while competitors quote the new level. The second case is less discussed and at least as damaging, because the commitment usually cannot be handed back. The protection is symmetry. Where a customer price is fixed for a period, the capacity behind it should be fixed on a comparable period; where a customer buys at market, the purchase should follow the market too.

Designing the mix deliberately

A workable pattern is a contracted base covering the volume that reliably repeats, with the peak and the unpredictable remainder bought as it arises. Index-linked or floating structures sit between the two, fixing the relationship to a published benchmark rather than the absolute level, which suits parties who want stability of process without pretending to know where the market will go. What matters is that the split is chosen and reviewed, with someone accountable for the resulting position, rather than emerging from whatever each desk happened to do.

What breaks a commitment in practice

When the market tightens sharply, contracted rates become uncompetitive for the carrier and space quietly stops being available at the agreed level. When it loosens, the shipper side finds reasons why volume did not materialise. Contractual remedies exist on paper and are rarely pursued, because both parties expect to trade with each other again. The practical consequence is that a contract is worth roughly as much as the relationship behind it. Firms that tender the volume they promised and pay on time find their agreements honoured further into a squeeze than those that do not.

Frequently asked questions

Is it wrong to buy entirely on the day?

Not if the sell side moves with it. The danger is a mismatch, where customers hold fixed prices for a period while the capacity behind them is repurchased at whatever the market asks each week.

What does an index-linked agreement actually fix?

The relationship to a published benchmark rather than the price itself. It removes the argument about renegotiating each time the market shifts, while leaving both parties exposed to the direction the benchmark takes.