Creating an Effective Shipper - Motor Carrier Freight Agreement – Part 1

Further to the last blog, a well written motor carrier agreement can be a powerful tool in promoting partnerships between shippers and freight companies. Listed below are some of the major components of a comprehensive contract.

1. Parties to the Agreement

The document must clearly identify the parties to the agreement, including the use of any third parties or sub-contractors. This is very important since it is critical that all transport companies that perform services for the shipper have the same licenses, insurance and service levels as the primary party to the agreement. In other words, they must be a replica of the primary party or any differences must be so stated. The agreement must also make clear that the parties to the agreement are independent contractors. Neither Shipper nor Carrier shall have the right to enter into contracts or pledge the credit of or incur expenses or liabilities on behalf of the other party.

2. Services

a) Types of services

The agreement must state the specific types of services (i.e. road, rail etc.) and equipment needed to provide to meet the requirements of the shipper.

b) Service delays and non-performance

Similarly, there is a requirement for clear wording that details what the shipper can do, in the event of service delays or service failures.

c) Volume guarantees

Many freight carriers will push for this during the contract negotiations. While this provides a level of certainty for carriers with respect to business volume expectations, it can place a heavy burden on shippers. It is very common for businesses to lose (and gain) customers over time. As we all know, economic conditions can change suddenly as can competitor actions. To avoid penalties and maintain flexibility, shippers should not accept any type of volume guarantees in their carrier agreements.

d) Exclusivity

Similarly, shippers should not provide exclusive agreements to any carriers. There is value in having backup carriers on most pieces of business. Service performance can change at any time as carriers lose back haul traffic or change management.

3. Service Level Expectations and Performance Monitoring

a) Services and Service Levels

The modes (i.e. road, rail) and types of services (i.e. standard ground, expedited) and the required transit times on every lane must be stated in the agreement.

b) Service Performance

Service performance includes the release of the freight to the carrier to delivery at final destination. Performance also includes the delivery of the shipper’s merchandise in the exact quantities as tendered to the freight company, and damage free.

c) Service Performance Monitoring

A set of KPIs must be created that measure the key activities (i.e. on time pickups, on time deliveries, shortages and damages, invoicing accuracy etc.) and listed in the contract. These KPIs must be captured in reports and supplied to the shipper in a timely manner (i.e. weekly, monthly, quarterly).

d) Service Review Meetings

There is great value in meeting with carriers on a scheduled basis to review the KPIs and discuss what both shippers and carriers can do to improve service. These meetings can be used to address a range of topics (i.e. drop trailers, packaging, paperwork preparation etc.).

4. Equipment

Shippers should not assume that all carriers have the right quantities and quality of equipment. The agreement should list the types of equipment required (i.e. 53 foot trailers, 40 foot intermodal containers) and the condition of acceptable equipment (i.e. trailers free of holes in the roof or protruding nails, door seals in working order etc.). These safeguards can help protect a shipper against the consequences of having a trailer arrive with wet or thawed merchandise.

5. Drivers

As we all know, there is a shortage of qualified drivers in North America. Shippers need to ensure that their chosen carriers supply drivers that have at least a minimum numbers of years of experience driving a truck and no highway violations during for a specified period. In the next blog, we will look at a range of other issues that need to be included in an effective shipper-carrier agreement including Rates, Term of the Agreement, Termination of the Agreement, Insurance and Property Damage.

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