Realistic Transportation Contracts

Think about transportation contracts between a carrier and a shipper. They are in three parts, two of which receive a lot of scrutiny, and the last part not so much. These three parts are liability considerations, rates, and the last process management.

Liability, because its potential for big money expense, is what causes both parties to hire lawyers. As the supply chain person you will have some input on this, but this is really lawyer heaven, and they call the shots on how the contract is written ultimately. This covers loss and damage to the freight, who is fiscally responsible for  in an accident or injury. The supply manager input is more setting safety standards and how expeditiously the freight claim process goes. And also giving the carriers a heads up on what your company’s lawyers will allow. This saves a lot of time.

Rates, yes, that is this ultimate reason why the organization sets up a contract. You would think the supply chain person representing the shipper would the top guy in setting up this part of the contract. True, that person’s influence here is substantial.  But RFP’s have become somewhat ritualized on data required, format, and response procedures. The supply chain person must stay in those constraints. There is, of course, a judgement made by the supply chain personnel on whether the bid results are reasonable and which carrier is the winning bid.

Process, probably the most often the least rigorous part of the contract, and the one most often not followed in the real world. Have you ever read a contract and said to yourself no way would anybody actually handle a real world shipment the way the contract is worded. Ultimately, to get paid, the work must be done.

The contract should have a clear process map on how the business will be handled. It should be realistic. The reality is that if the contract can not connect to the real world, the benefits of an organized process will not be realized and its devalues the relationship and the contract itself. Set expectations, but also anticipate how things are  handled when expectations are not being met.  When a shipper or carrier contract is terminated for not meeting expectations, in most cases, it is a failure to clearly work through the process part of the contract.

 

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