What Is A Shipper Carrier Agreement?
A shipper carrier agreement is a written contract that establishes the terms between a shipper and carrier for the transportation of goods. The shipper is the party that hires the carrier to transport its goods, while the carrier is the entity providing the transportation services.
Shipper carrier agreements are essential in the logistics industry, as they help to outline the rights and responsibilities of both parties. Additionally, shippers and carriers often rely on each other’s knowledge and experience to develop mutually beneficial strategies to improve service performance, reliability , and control of expenses. This collaboration is accomplished through various types of shipper carrier agreements that define the scope of the relationship so that each party clearly understands their expectations and obligations.
Put simply, shipper carrier agreements form the foundation for the transportation relationship between shippers and carriers. They are designed to address important issues such as the delivery of goods, liability in the event of damage or loss, and payment terms. Both shippers and carriers must make sure their shipper carrier contracts effectively and accurately reflect their intent and expectations to avoid potential disputes.
Necessary Elements To Be Included In Shipper Carrier Agreement
The essential elements of a shipper carrier agreement include the scope of services, payment terms, liabilities and limitations on liabilities, claims procedures, dispute resolution mechanisms, and termination provisions. As with any agreement, it is crucial that the written terms are clear, unambiguous, and precisely worded to accurately reflect the intentions of the parties.
Scope of Services: This section of a shipper carrier agreement should set forth exactly the services which the carrier will perform for the shipper, including the mode (or modes) of transport (trucking, rail, etc.). This section may also contain a provision precluding any allegations or claims that the carrier is a common or contract or freight forwarder, freight broker, 3PL, 4PL, or any other type of logistics service provider absent such services being expressly documented in the agreement.
Payment Terms: Payment terms should include specifics on the compensation due the carrier for services performed, when and how the payment process shall be conducted, procedures for filing freight claims, and procedures for handling disputed freight charges.
Liabilities and Limitations on Liabilities: Carriers are generally considered bailees for hire and owe a duty of care to the shipper with respect to the goods being transported. The standard is one of ordinary care and if the carrier is held to have breached such duty, the shipper may recover only the difference in value between the goods delivered and undamaged and damaged goods, unless the carrier can demonstrate that the damages were not the proximate result of the carrier’s negligent conduct. Since the ultimate goal of carriers when negotiating and drafting shipper carrier agreements is to limit their liabilities and expand their immunity, careful attention to this section is critical. This section should include limitations on the claims recovery amount (i.e., the intrinsic value of the goods or the cost of repair), and should expressly include immunity from indirect and consequential damages or damages for mental anguish or pain and suffering. In addition, provisions should be included that the carrier will not be liable for storage costs, demurrage charges, freight charges, over-weight or over-size penalties assessed by the carrier’s insurance company to the shipper, or penalties by a regulating authority or government taxing agency for performance, non-performance or delay in performance of any of the terms and conditions of the shipper carrier agreement, to name a few.
Claims Procedures: The claims procedure section should address the filing, handling and settlement of claims. Such provisions should include requirements as to the filing of claims with the carrier within a certain time period after delivery of the cargo as well as methods for determining the nature, extent and amounts of the losses or damages claimed. Procedures should also be outlined as to how claims will be handled by the carrier. This section should also address whether certain types of claims need to be filed directly with the carrier (as opposed to filing with the carrier’s insurance company). It is not uncommon for shippers to have to file claims directly with a carrier’s insurer and why claimants must do this should be expressly stated; such as that filing a claim directly with the insurance company enables the carrier to verify both the validity of the claim and the claimant’s status as an insured under the policy. This section should also require claimants to submit certain documentation and take other actions to mitigate their damages.
Dispute Resolution Mechanisms: Should there be any disputes under the agreement, parties may prefer to mediate or arbitrate the dispute, instead of litigating, as the costs of defending arbitration and mediation proceedings often pale in comparison to what is spent during the pretrial phase of litigation and trial proceedings. Further, mediation and arbitration can present a more amicable setting in resolving a dispute, particularly when working with business partners with whom the parties still have a desire to work with in the future.
Termination Provisions: Since the shipper carrier relationship is one-of-a-kind, the parties should consider carefully how to triggered events of default, notice of default and pending termination, and grace periods for curing defaults or non-termination, to protect against unforeseen events or occurrences which may lead to a termination. The termination provision should also detail the parties’ obligations after termination, including the performance of all obligations that accrued prior to termination.
Comparison Of Shipper Carrier Agreements With Broker Carrier Agreements
An important distinction is that between shipper carrier agreements and broker carrier agreements. Both contracts involve arrangements for moving freight, but they involve very different delivery scenarios that have significant legal implications. The distinction between a broker carrier agreement and shipper carrier agreement is simple: an agreement where the carrier is transporting freight on behalf of itself is a shipper carrier agreement, while one where the carrier is transporting the freight on behalf of a party that owns that freight is a broker carrier agreement.
The primary difference between a shipper carrier and a broker carrier agreement is that a shipper carrier is looking to have a carrier physically transport its goods itself, while a broker carrier accepts goods for transport – usually at a completely separate location – and then retains a carrier to perform the actual transportation. In a shipper carrier agreement, for example, the shipper could move its own goods through the use of another’s equipment – e.g., a truck – but seeks the assistance of the carrier by offering that carrier in the proposed contract of carriage either better payment terms or a consistent amount of work. On the other hand, in a broker carrier agreement, the broker does not enter into a contract of carriage directly with the shipper or consignee – rather, the broker first makes an agreement for the transport with the owner of goods and then retains a carrier to perform the actual transportation. When a shipper, for example, enters into a contract with a carrier to arrange for the transport of its goods, it finalizes its contract with the carrier to be the one directly physically transporting those goods itself. This additional step can have significant legal implications – including liability and whether the Carmack Amendment applies – such that a party must make a decision on whether to retain a carrier or broker its loads based upon the potential legal implications.
Legal Requirements And Compliance
The motor carrier industry is highly-regulated, and the FMCSA, along with state departments of transportation, are likely to be the agencies most active in enforcement of applicable regulations. An extensive compilation of these regulations can be found online at the FMCSA’s website, and many of the state DOTs and agencies have similar databases. These regulations may, among other restrictions, limit the hours that employees can work, the rates a carrier can charge customers, and what information must be disclosed to carriers before they are engaged. The consequences of non-compliance with any applicable regulations include administrative sanctions, civil penalties, and, in some jurisdictions, even criminal prosecution.
It is a common misconception that a shipper can not be liable for violations of DOT regulations under the guise of vicarious liability, or liability for the actions of its agent(s) or contractor(s). This idea is particularly prevalent in the context of truck drivers, where a shipper believes that liability for any truck driver violation will be handed off to the driver’s employer based on an assumption of vicarious liability. In fact, this assumption is rarely the case. Liability for the most serious trucking violations cannot be imputed to the trucking company without negligence on the part of the shipper, such as if the shipper had knowledge of a driver or trucking company’s poor safety record and was aware that other customers had complained about the poor safety record. However, there are many other kinds of DOT regulation violations that are not so easily allocable to the trucking company, creating a potential liability for shippers who engage carriers they know, or should know, are violating regulations. Examples of this type of liability include the following:
The bottom line is that it is important to ensure that a proposed carrier is not operating in violation of any federal or state regulations before engaging the carrier or continuing to do business with the carrier if it should become aware of an infraction. Thorough research on the carrier is required, as well as proper oversight over the hiring, training, and supervision of carriers and carrier-employee hires, and regular updates of records on carriers that have previously violated regulations (e.g., random drug test results, background checks, vehicle registration and inspections). A company’s negligence in researching a carrier’s history and/or failure to operate with due care in permitting a carrier to violate FMCSA regulations can subject the shipper to liability.
How To Negotiate A Shipper Carrier Agreement
Negotiation is the key for creating a mutually beneficial shipper carrier agreement. Generally, the negotiating chips begin with a risk analysis that most businesses have performed about the transportation risk and the trade-off between premium and retention. Once that is done, a complete assessment of the profit and loss relationship of the current arrangements is at hand, and generally it is during the proposal of a new business relationship that the negotiation setting occurs.
The term "negotiation" in this context will not always be face-to-face or even directly between the parties. Negotiation also occurs at times through intermediaries and third-party organizations, such as freight brokerages.
What terms are normally negotiated? The following are some examples, but the list is not exhaustive: The time frame of the contract is an important consideration . Most contracts will be for a year, and a year is really only one month of normal business, due to all the fluctuation in business each month being materially different from the next month, and different seasons affecting different businesses in variable ways. Even one month can be significant, depending on the nature of the cost of freight and how that cost fluctuates each month. Many contracts only include the terms "pay as billed." Larger businesses may have strength in making the smaller business get onto its payment schedule through a term of 30 or even net 60. It is essential to keep in mind that starting from a position of zero and moving to a positive relationship template will allow for negotiation to yield the best possible outcome. For example, simply eliminating a layover charge may constitute a change worthy of gaining a better position in negotiations.
Tips Regarding The Management Of Shipper Carrier Relationships
The shipper-carrier relationship is, or at least should be, a partnership. It is one of the few areas in transportation where there is prolonged, constant interaction, making good communication key from the outset. If communication is not strong from the beginning of the relationship, it may never reach the necessary levels. One method of ensuring good communication is to include language on the topic in your initial agreements with carriers, whether in the contract itself, or as part of a letter of intent. Regular meetings with your carrier(s) are important to discuss any issues and address them in a timely fashion. Both parties should review performance metrics on a regular basis, including but not limited to, on-time percentage, damage claims, and cost savings as part of a route analysis. These metrics help both parties understand how the current relationship is functioning, and allow them to make adjustments if needed, making it a win-win for both shippers and carriers. And similar to all other agreements, it is important to conduct regular reviews of your shipper-carrier contracts. Contracts should be reviewed periodically, and especially before the planned or expected award of additional lanes or volumes that the agreement covers. Additionally, you should ensure that the terms of the agreement reflect your current business and freight volumes, and are still competitive in the market. Regular contract reviews help to ensure that the relationship is functioning as expected, allows for any course corrections, and will save both parties time and money down the road. If you find that you have made a long-term commitment to a carrier for a lane that is no longer cost effective, the contract review will alert you to that fact sooner rather than later, and allow you to make adjustments. Ultimately, maintaining open communication, regular performance evaluations and periodic contract reviews through the life of a relationship will help to ensure a successful and productive shipper-carrier relationship.
Shipper Carrier Mistakes To Avoid
One of the most common errors I’ve seen is for carriers to accept a shipper carrier agreement simply because they’re a large shipper or claim that business is hard to get. I’ve seen them literally accept agreements and not bother to read them. Make sure you review and negotiate these agreements. If necessary, you should explain to them that you can’t afford to sign over-run deals at the expense of your financial health.
Another pitfall is the assumption that all disputes will be resolved by that 3rd party forum , whatever it may be. Carriers are assuming that simply because the parties have agreed to the terms and conditions of an agreed forum choice, it will necessarily get to court or arbitration. There needs to be an understanding between the parties that it’s in everyone’s interest to amicably resolve 90% of the disputes without the need for litigation. Failure to assign responsibility for the preparation and expense of litigating a dispute usually causes a delay in the resolution of a dispute. Educating the shipper about the effort you must expend to have a timely enforced judgment may make them more responsive.