If your company provides hundreds of thousands or millions of dollars in revenue to certain carriers, they are a critical part of your success, or failure and vice versa. While a rate quote may be a suitable form of agreement between shipper and carrier, for low volume service providers, it is not adequate for larger bid awards. There are several reasons for this.
First, a written agreement between the parties can spell out the nature of the business relationship (e.g. parties to the agreement, governing law of which country, state or province, services expected, etc.). Second, in this era of tight capacity, there is a requirement to obtain written commitments from transport providers on various elements of service performance (e.g. on-time pick-up, transit times, billing accuracy etc.). These can be detailed in a set of SLAs or Service Level Agreements that can be attached to the core agreement.
Third, the full set of rates, accessorial charges and terms and conditions should be attached so there is no disputing the costs the shipper will incur over the agreed contract period. Fourth, there should be a written understanding concerning the length of the bid award and a mechanism or formula (e.g. CPI increase) for rate increases in subsequent years. Fifth, there should be a written understanding as to what measures can be taken in the event of non-performance.
The intent is not to create legalistic, adversarial relationships with a company’s core carriers; rather signing written agreements will establish a framework for service performance and communication that can promote understanding and co-operation. In other words, the document will provide clarity with respect to expectations, performance and costs that can be quite beneficial to both parties.
As a final tip, don’t sign a carrier’s standard agreement. Engage your own lawyer to make sure the contract addresses the unique requirements of your business. Take the time to negotiate well thought out quality agreements that create a solid framework for long term carrier relationships.
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