If one can say one thing about the relationships between transportation intermediaries and their clients, it is that no two are the same. This is especially true for shippers who demand that their own terms and conditions dictate their relationship. In the past, only a select group of loaders or logistics service providers (LSPs) insisted that transport intermediaries contractually renounce industry norms or statutory limitations of liability. Now it has become a common practice for shippers and logistics providers to demand the same. Most carrier / LSP contracts can significantly increase your liabilities as an intermediary and require careful scrutiny by your risk manager, compliance officer and lawyer.
Here are five tips that you and your team should consider when reviewing carrier / LSP contracts.
Beware of inaccurate terms
Some shipping contracts are created by people who understand very little about transportation and logistics. Signing a poorly constructed contract can cause as much damage to you and your shareholders as it can cause the shipper.
When faced with poorly adjusted contracts like this, a transport intermediary must modify the contract to the satisfaction of both parties or return to their standard terms and conditions.
Describe the responsibilities of all parties
Service contracts can include many aspects of the services you promise your client, including some that may not be under your direct control. For example, the availability of equipment, the safety and physical condition of the carriers, the hours of delivery and even the hiring practices of the drivers are controlled by the companies that actually provide the service. As an intermediary, when you are presented with a contract of this nature, you must transfer the responsibility for those services to the actual suppliers. The transfer of responsibility ultimately requires a contract between you and those providers.
Also, understand that your provider may depend on another layer of providers. Consider a contract between the shipper and the transportation agent that includes domestic transportation. If your usual practice is to use a property broker to organize national transportation, make sure that the contract suits this practice. Establish a subcontract with the property broker that describes what you and the shipper require from the truck driver. Summarizing the responsibilities of all parties in advance ensures that there are fewer disagreements along the way, and their ability to seek resources against responsible parties is preserved.
Have a carefully planned negotiation strategy
Changing responsibility or risk from one party to another inevitably involves an additional cost for the party that inherits the risk. Ultimately, that cost goes to the customer. Indicating this can generate some influence when trying to make modifications to the contract. For example, a shipping contract may stipulate a limit of liability for damage to the cargo, but may not include a cap on those limits. If the sender has his own insurance policy, it is a duplication of the cost to demand from you, the intermediary, that he bind himself contractually to unprotected liability limits.
It is also important to consider what is not stipulated in a contract and how that can increase your liability and costs for the client. For example, a contract that does not address punitive, indirect, incidental or consequential damages does not mean that you are immune to them; instead, it is a potential landmine where both parties can spend considerable resources to fight a claim.
Carefully scrutinize harmless agreements
The job of the lawyer who draws up the sender's contract is to transfer responsibility for a claim to a third party. As a result, most strive to reach agreements that are too broad and innocuous, which can create great problems for the intermediary. Terms such as "agent", "any", "other parties", which appear in relation to "", are examples of harmless wording that may extend your responsibility beyond the scope of the services that will be provided. Rarely does the author of the contract even consider that many of these overly broad terms are often not insurable and unacceptable, especially with coverage such as General Liability and Workers' Compensation.
Strive for clarity and equity
Consider that a contract is more than an agreement between two parties; It is a document that can be seen by many third parties, including insurance adjusters, lawyers, collection specialists, and maybe even the courts. The contract must be written in a way that is easy for all parties to understand. I recommend that, if you are presented with a contract that is not clear to you, modify the document to clarify the purpose and include the definitions within the contract.
Any successful and long-term business relationship should benefit both parties. A clearly understood and equitable contract is a vital part of that relationship.
Video credits to Roanoke Trade YouTube channel