Follow us on Twitter!
Blog Header Logo
DG&A's Transportation Consulting Blog
Posted by on in General
  • Font size: Larger Smaller
  • Hits: 25849
  • 1 Comment
  • Print

The Keys to Successful Shipper – Carrier Freight Contracts

Tight capacity is driving shippers and carriers to take a hard look at the value of freight contracts. Shippers are seeking rate stability, good service and capacity commitments.  Carriers are looking at securing the most attractive yields on their assets and consistent volumes on lanes that fit with their core competence. One method of helping both parties achieve their goals is by capturing the key elements of the business relationship in a well crafted contract. To create truly Win-Win freight agreements, there are a number of core principles that need to guide these discussions.

Pricing is one Key Element of the Total Package

Shippers are looking for competitive rates. Carriers are looking at offering rates that are competitive, so long as they produce a satisfactory return. Competitive rates are a starting point, a way of filtering and ranking potential carriers in terms of cost savings or cost containment.

One of the critical guiding principles in the carrier selection process should be to evaluate potential business partners across a broad set of variables. These requirements should include size and type of fleet, safety rating, energy efficiency, service performance, and EDI capabilities. A good contract should spell out the shipper/carrier expectations and requirements for each of these items. Rates are very important and will ultimately be a determining factor but they should be partof the total package.

The contract should spell out the length of the award and the level of rate increases in future years. All rates, accessorial charges and fuel surcharges should be spelled out in the appendices.

Freight Characteristics

Both parties need to make sure that the freight tendered meets the characteristics as described in the rate request or RFP. The density of the freight, pallet configurations and ease of loading are critical attributes. Shippers that are “carrier friendly,” with fast and efficient loading/unloading processes, make it easier for carriers to make money. The pricing agreement must be consistent with the precise characteristics of the freight. Otherwise carriers are going to be seeking rate increases just before or after the agreement is signed.

Volume Commitments

Freight rates are often tied to volumes. Shippers that offer full truckloads or truckloads of LTL as compared to sporadic LTL or small parcel shipments offer more value. Many shippers seem to have a problem with the notion of volume commitments. Since shipper volumes are tied to customer demand, this can be a tricky
item to negotiate.

Certainly it is important for both parties to havean understanding as to the volume expectations surrounding the proposed rates. Where high volumes are involved (and where the pricing has been developed on the basis of these volumes), the shipper needs to find a way to make some sort of volume commitment. This can take several forms.

One approach is to offer a minimum but significant volume commitment that can be tied to business levels. If a customer is lost, the volume may need to be adjusted and the rates may need to be increased. Some companies award business on the basis of primary and backup carriers with the split (e.g. 90/10, 80/20) reflecting the volume allocation and rate differential.  As a minimum, there should be specific wording as to the volume and or ranking of each carrier.

Capacity and Service

Capacity is tied directly to volumes and yields. Shippers making volume commitments are entitled to expect capacity commitments from their carriers. While this can be solidified in a contract, other variables come into play. Smart shippers and carriers utilize scorecards to measure performance. These metrics can be captured in SLAs (service level agreements). One measurement of capacity commitment is the load acceptance/load
refusal metric. If performance is below expectations, this can be as a result of several factors. The shipper may be providing more loads on specific lanes and/or at specific times than was expected. The carrier may have overcommitted or found another account that has higher yields on some of the shipper’s lanes. It is most important for the two parties to have an open and honest discussion up front as to what each expects from the
other and for these expectations to be captured in writing. If volumes or load acceptance performance deviates
from expectations, good contracts contain some sort of progressive discipline/dispute resolution process to rectify the problem.

On time service should be dealt with in the same manner. Prior to signing a contract, there should be a full understanding of the pick-up, drops en route and delivery parameters which are sometimes not fully spelled out in the RFP. Since deliveries to more remote locations may involve the use of interline partners, there must be an understanding of the hand-off process and the frequency of the interline delivery schedules (which may not be daily to all locations).

Good Contracts can lead to Longstanding Business Relationships

A well constructed and complete freight agreement can provide both partners with peace of mind and a solid business foundation. A weak contract can lead to disputes, hard feelings and sub-optimum financial rewards for both sides. For companies that lack experience in this area, it is highly desirable to reach out to experienced professionals who can guide you through the process.



  • Guest
    Nifty option Tips Saturday, 28 May 2011

    I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I’ll love to read your next post too.
    Nifty option Tips

Leave your comment

Guest Monday, 27 March 2017

Most Recent Posts


Tag Cloud

Swift Werner Infrastructure freight RFP Freight Transcom Fleet Leasing BNSF FCPC Sales Management Twitter Dedicated Contract Carriage Politics Right Shoring Map-21 Emergent Strategy Wal-Mart US Housing Market energy efficiency Transportation Buying Trends Survey solutions provider buying trucking companies transportation newspaper network optimization CSA scores Horizontal Supply Chain Collaboration Spanx Scott Monty TMP Worldwide CSA LinkedIn Celadon Canada-U.S. trade agreement YRC Job satisfaction freight broker FMS Rate per Mile Deferred Packaging Trucking NAFTA selling trucking companies Harper Davos speech NS Accessorial Charges financial management US Election 2015 Economic Forecast Facebook FMCSA Carriers hiring process freight transportation in 2011 BlueGrace Logistics 3PLTL University of Tennessee freight costs driverless Colilers International CSX Shipper EBOR Failure Search engine optimization Load broker Crude Oil by Rail Canada U.S. trade Training New Hires Fire Phone RFP ShipMax UP pipelines coaching Retail Hudsons Bay Company Business skills Derek Singleton CN Rail Inbound Transportation shipper-carrier collaboration TransForce consumer centric Business Strategy Freight Management Masters in Logistics New York Times freight agreements Yield Improvement rail safety robotics Distribution automation fuel surcharge Crisis management shipping wine Omni Channel Transportation freight payment driver Sales Training 3PL NCC $75000 bond Rotman School of Business capacity shortages shipping Entrepreneur Canadian economy Cleveland Cavaliers Conway marketing Dedicated Trucking Leadership Transloading Regina shipper-carrier contracts e-commerce David Tuttle 360ideaspace Keystone Pipeline broker security Rail home delibery carrier conference NMFC MPG LCV's freight forwarders Truckload Business Transformation Strategy freight cost savings tanker cars Amazon Dan Goodwill customer engagement the future of transportation Blogging freight transportation conference Career Advice President Obama Software Advice Education APL routing guide Freight Capacity Canada freight rate increases Doug Nix Warehousing Associates US Economy Freight Rates Bobby Harris US Manufacturing dynamic pricing Surety bond Finance and Transportation peak season intermodal Success LTL trucking company acquisitions Driver Shortage Social Media in Transportation Railway Association of Canada Adrian Gonzalez bulk shipping Loblaw Freight Recession Global experience Schneider Logistics IANA 2014 freight forecast truck driver dimensional pricing JB Hunt Canada's global strategy Tracy Matura Management CP Rail Retail transportation FuelQuest Trump capacity shortage economy transportation news freight bid Global Transportation Hub derailments Microsoft Canadian truckers CITA Shipper Pulse Survey Doug Davis economic forecasts for 2012 2013 Economic Forecast Canadian Transportation & Logistics Transport Capital Partners (TCP) Donald Trump 2014 freight volumes broker bonds freight audit professional drivers freight transportation Reshoring Packaging mentoring future of freight industry MBA 2014 economic forecast Success failure entrepreneur autonomous vehicles truck drivers ProMiles Freight contracts transportation audit KCS Driving for Profit Consulting Muhammad Ali US Auto Sales Climate Change TMS Broker Ferromex Toronto CRM driver shortages freight payment freight audit FCA USA Truck Transplace CN Canadian freight market Life Lessons cheap oil shipper-carrier roundtable Social Media drones 2012 Transportation Business Strategies. Jugaad Freight Carriers Association of Canada Stephen Harper Trade Vision Training Transportation service

Blog Archives