An Overview of Transport Service Agreements
A transport service contract agreement is a mutual understanding between a shipper and a freight transportation carrier. This legally binding document governs the compensation structure (how the carrier will be paid), the liability (the level of care that the carrier needs to apply to the cargo being transported) and delivery commitment timelines (how long the carrier has to deliver the cargo). Transport service contract agreements are used for both domestic shipping and international transportation. In some regions (including the United States), these agreements are called carrier service contracts. Regardless of the terminology , be sure to put these agreements in writing before you move your freight — you do not want to lose the protection and benefits provided by these agreements.
Domestic transportation service contracts typically apply to ocean shipping services. A basic transportation service contract is a 1-1 agreement between a shipper and a carrier. There are specific sections of your agreement that will require minimum requirements (such as how much notice must be given for cancellation). The written contract protects both the shipper and the carrier.
There are two types of international transportation service agreements: a named port contract and a through bill of lading. A named port contract means that the carrier is responsible for the items once they get aboard the ship. The more typical through bill of lading is the CMR International convention, which governs international transportation services. With this bill of lading, the carrier is liable for loss or damage in transport for any reason. Regardless of which type of contract is used, there is usually an arbitration provision in the agreement that dictates how disagreements are handled. Depending on where you are located, it might be international arbitration, Maritime arbitration, or another type of arbitration provision.
Transport Service Contract Essential Elements
A transport service contract typically includes specific key elements that define the relationship between the parties:
(i) Parties: The names and addresses of the contracting parties;
(ii) Object: The identification of the goods or cargo to be transported, including details such as origin and destination;
(iii) General conditions: The basic contract terms covering insurance, liability, demurrage, penalties, loading/unloading of cargo, invoicing, payment, breach of contract, governing law and arbitration/mediation. A critical aspect that should also be mentioned in this section is the acceptance of the general conditions by the carrier, especially when dealing with international carriers who may have their own general terms and conditions;
(iv) Specific conditions: Any additional terms that are tailored to the specific agreement, such as:
(i) Exclusivity: If the carrier is to be the sole provider of the given transport services;
(ii) Term: Whether the contract is to be valid for a specific (or indefinite) term;
(iii) Modification: That any changes to the contract shall be made in writing and accepted by all parties;
(v) Drafting: That the contract has been drafted by all parties jointly, and any ambiguities shall be construed against the drafter. This is especially important if the contract is drafted by one of the parties without input from the other party;
(vi) Jurisdiction: That the laws of [country] shall apply, and in case of any disputes, they shall be submitted to the exclusive jurisdiction of courts in [name of place]. The agreement may also outline the jurisdiction in which any disputes may be settled, the governing law of the contract and the payment of attorney’s fees.
Negotiating Transport Contract Terms and Conditions
When negotiating the terms of a transport service contract, it is vital to be clear and unambiguous. The contract should contain all terms that are relevant to that supply of services. This will include, but is not limited to, consideration for delivery timetable, price and stipulations as to the standard of service (for example through the use of SLAs). A superior negotiating position will allow for the inclusion of commercial terms that apply to the benefit of one party. Consideration should also be given to risks associated with force majeure and liability. The parties must also consider, during the term of the contract, how variations in the obligations under the contract are to be managed. Changes in the type and frequency of transportation are almost inevitable and should be reflected in a robust contract.
Legal Issues and Compliance in Transport Services
When formulating a transport service contract, several legal considerations must be taken into account. The ultimate goal is to ensure the contract complies with all relevant national and international laws and regulations while also being comprehensive enough to cover potential risks and liabilities. While the specifics may vary based on the country, or even state or province, in which the services are rendered, many jurisdictions have general laws regarding the carriage of goods. For example, in the United States, the federal Carmack Amendment to the Interstate Commerce Act governs the liability of common carriers (railroad and motor carriers) for cargo loss or damage. Its provisions have been applied for nearly a century, and even though there have been major changes in the way goods are transported — from motor to rail, rail to water, and water to motor — the law still responds to our transportation needs. In the European Union (EU), under Regulation (EC) No 561/2006, rest periods and driving and work time of drivers of passenger vehicles and goods vehicles are regulated. All EU member states must comply with these rules or face substantial fines. Outside of the EU, some countries like Australia, Brazil, Canada, and India, have their own regulations for commercial road transport that must be adhered to . Both national and state or provincial requirements could also impose additional weight restrictions, tracking requirements, and restrictions on routes, services, or hours of operation on a transport service provider. For example, specific truck routes may need to be used, and under certain circumstances, sites may be off-limits because of height restrictions. Cheeky Contracting will make every effort to comply with each of these local requirements and notify you of any applicable limits on our services and products. Under the Carriage by Air (Carriers’ Liability) Act 2019 (Law No. 13/2019), companies offering both national and international transport have a strict liability for loss, damage or delay of goods, presumably caused by gross negligence. If damage occurs, the carrier has the burden of proof to show no liability was incurred. Transport liability is also regulated by the UN’s Convention on the Carriage of Goods by Sea (The Hamburg Rules), Convention for the Unification of Certain Rules Relating to International Carriage by Air (The Montreal Convention), the Convention on the Limitation of Liability for Maritime Claims (The 1976 and 2010 LLMC Conventions), and the Intergovernmental Organization for Freight Forwarders (FIO and FIATA).
Advantages of a Well-Structured Contract
A detailed transport service contract agreement has the power to protect clients and contractors by ensuring all transport and goods delivery service points are captured. A client also feels more sustainable when dealing with a professional service provider about contractual obligations. Professionalism is what generates brand loyalty and integrity and reaffirms the business ability and perception of worth.
In addition, a well written agreement helps to show suppliers that you take your obligations seriously and thus a necessary confidence is created in the relationship that often provides better negotiation outcomes as people are more willing to live up to a written agreement.
A transport service contract which is too vague will leave the contractor and the client on divergent paths which when coupled with poor communication can be the catalyst for business breakdowns with catastrophic losses. On the other hand, a clear and unambiguous contract will build trust between parties. In addition, a detailed transport service contract is an essential document because it helps to:
Pitfalls in Transport Service Contracts and How to Prevent Them
When it comes to contract management, the fine print is just as important as the initial terms and conditions. Internal provisions and boilerplates can spell disaster for a transport services company or manufacturer down the road . Frequently undiscovered until something goes wrong, these common pitfalls include:
Solutions
In order to avoid these contract management pitfalls, take careful steps to incorporate the following solutions:
For help with the development and management of transport service contract agreements, consult with an experienced law firm that can provide the deep industry knowledge.