What is a Transportation Agreement?
When companies engage with a transportation services provider, it is crucial to have a written agreement that details all of the terms of such engagement. In many circumstances, however, the failure to have a written transportation services agreement results in litigation. When both parties have a written agreement, the likelihood of a dispute arising is greatly diminished. In the event of litigation, the terms of the transportation services agreement could constitute a complete defense for one party against any claims made by the other.
A written transportation services agreement can help to eliminate any disputes over the type of services requested. A company requesting transportation services and the hired services provider may be operating under the assumption that different services are going to be provided. A dispute may arise over whether the transportation services provider’s scope of services includes only basic transportation services or also includes services such as advanced tracking, chain-of-custody verification and real-time reporting of delivery issues.
Written transportation services agreements may also help in the event of a delivery issue. For example , if the delivery of goods is delayed, a transportation services agreement may prove that the delay was not caused by the transportation services provider and certainly that it wasn’t totally within the control of the services provider. A written transportation services agreement may provide that a delay would occur only if the freight was improperly labeled or if there were no parking facilities at the unloading site, among other things.
The failure to have a written transportation services agreement may also create a dispute between the transportation services provider and a third party. For example, the company that engaged the services provider may have retained the company directly or it could have been retained by a subsidiary or division of that company. If the company does not pay bills, a third party has the right to seek payment from the company in addition to the transportation services provider. A written transportation services agreement, however, may provide that the company cannot assign payment or make payments through any other entity.
Key Components of Transportation Contracts
Whether you are hiring a third-party logistics provider to manage your supply chain or have secured a contract with a third-party provider, it is imperative that you have a well-drafted transportation services agreement that both parties can trust and rely upon.
No matter the type of services to be provided, any transportation services contract should include the following clauses:
Scope of Services. This clause outlines exactly what services will be provided under the contract. If you are the customer, you should add all the services that you expect to receive and make sure that they are not outside of the service provider’s capabilities. As a provider, this clause should outline exactly the services you are willing to perform under the agreement. In addition to the type of services, you should also include what your expectations as to timing and measurement of performance for the services. Is it the number of deliveries per week? Is it the on-time rate?
Payment Terms. This clause will set forth exactly how much client will owe to the service provider and set forth when the payments are due and what happens if payments are not received by that time. This clause should set a specific timeline for which payment should be made. Many transportation contracts also include late fees that the service provider will charge to the customer for late payments.
Limitation of Liability. This clause is extremely essential for the protection of the service provider. If something goes wrong during transportation, the client may seek damages from the service provider. Limiting your liability under the breach of contract clause not only protects the service provider but incentivizes the provider to live up to its contractual promises.
Indemnification. Indemnification requires one party to compensate and hold the other harmless for any damages. In a transportation services contract, the service provider would seek indemnification from the client for any damages caused by the client or its personnel or cargo during the provision of the services. The client would seek indemnification from the service provider for damages cause by the service provider or its personnel.
Tailoring The Agreement
While most transportation services agreements have a standard framework, it is often important to tailor the provisions of a specialized transportation agreement to meet the requirements of the contract and service provider. Customization may be necessary for several reasons, including the type of transportation to be performed, the nature of the shipments to be transported, or the frequency or set time intervals in which the goods must be transported.
For example, when working with a food delivery service, the contract may allow for only fresh produce. This requirement may not be adequate for the owner of a restaurant willing to purchase refrigerated goods in addition to fresh produce. Therefore, the delivery process and frequency would need to be adjusted to accommodate the needs of the restaurant owner. Similarly, if the company is shipping pharmaceutical products, more stringent handling and loading instructions would need to be included to avoid damage to items sensitive to jarring or abrasion.
More significant issues may need to be addressed as well. For example, under certain states’ laws, a company cannot ship goods that are illegal in other states. A company that sells agricultural products to states where the sale of those products is banned may need to include that provision in the agreement.
Each contract should accommodate the needs of the stipulating business, whether it be the carrier or the customer.
Laws & Regulations Affecting Contracts
Creating a Sample Transportation Services Agreement
When drafting a transportation agreement, it is crucial to keep in mind the legal considerations and compliance issues that may affect its enforceability. Not only must businesses be aware of the general contract requirements when creating these clauses, but the provisions must also comply with the laws and regulations of their local, state, and federal jurisdictions. If any of these provisions conflict with a government regulation, civil or criminal penalties may result, including penalties levied against businesses by the Federal Motor Carrier Safety Administration (FMCSA).
In many respects, transportation and logistics services agreements are similar to other types of contracts in that they must identify a service provider and customer, the services to be rendered, and payment terms. However, some clauses have special importance for transportation services agreements because of the complex legal issues that may arise, particularly with regard to safety regulations. When drafting these agreements, those overseeing these contracts should carefully consider the following:
Legal Compliance Because of the complex nature of transportation services, it is essential to seek the advice of an attorney who has experience with transportation services contracts before finalizing a sample version. Although most states follow the same basic framework of contract law, when it comes to these complicated agreements, it is important to be especially diligent about understanding the specific laws that apply to these contracts. To ensure that the contract is legally enforceable, it is imperative to comply with all local, state, and federal regulations.
How To Approach the Negotiation of a Transportation Contract
When negotiating the terms of a transportation services agreement, it is important to consider the implications of each provision on your business. It is not uncommon to extend credit terms to a new customer, but it is worth considering whether this relationship with give rise to a significant accounts receivable balance. A carrier should also consider the minimum and maximum commitments to be made by both parties, and the remedies for non-performance. Perhaps you will want to receive a break on the rates charged by the carrier if certain minimum monthly volumes are met. Conversely , a carrier may want to ensure that a minimum amount of business is received to justify providing a certain level of service.
Another important topic to consider is the dispute resolution mechanism to be used. This could take the form of arbitration or mediation, even if only for certain types of claims. If the parties attempt to agree on a dedicated facility to be built or installed by the carrier, it will be important to include provisions addressing: (a) the specifications to be met; (b) when such dedicated facility shall be operational; (c) an abandonment or discontinuance clause; and (d) an assignment clause allowing the carrier to transfer their interest in the facility (if applicable).
Transportation Services Agreement Example
A sample transportation services agreement is set forth below:
TRANSPORTATION SERVICES AGREEMENT
This Transportation Services Agreement ("Agreement"), dated [date], is by and between [business name] (the "Transportation Services Provider"), and [company name] ("Shipper"). The Transportation Services Provider and Shipper are charged with the responsibility to ensure all hazardous materials are properly transported and delivered as set forth in this Agreement.
The Transportation Services Provider acknowledges, understands and agrees that (1) it is solely the responsibility of the Transportation Services Provider to ensure that any motor carrier hired by the Transportation Services Provider to transport hazardous materials on behalf of the Shipper maintains the appropriate federal, state and local permits, licenses, tariffs and/or rate that the carrier must possess in order to perform such transportation services within the United States; (2) the Transportation Services Provider is responsible for entering into a written contract with a motor carrier it hires to transport the hazardous materials on behalf of the Shipper that at a minimum contains the following provisions (or language of similar legal effect):
(a) A provision that the motor carrier will comply with all applicable federal, state and local laws, rules and regulations pertinent to the transportation of hazardous materials, and in particular, the applicable requirements contained in the U.S. Department of Transportation ("DOT") Hazardous Materials Regulations, 49 C.F.R. Part 171-179, and all applicable provisions contained in the Environmental Protection Agency ("EPA") Resource Conservation and Recovery Act ("RCRA") regulations, 40 C.F.R. Part 260-279 and 40 C.F.R. §262.11-262.44.
(b) That the motor carrier will collect, manifest, transport, treat, store and dispose of the hazardous materials received from the shipper only at facilities that during the term of the contract or agreement meeting the requirements of 49 C.F.R. §172.205, are registered with the appropriate federal, state and local agencies; and
(c) That the motor carrier will notify the shipper and the appropriate federal, state and local agencies within twenty-four (24) hours of any incident, accident or spill involving the hazardous materials transported on behalf of the shipper.
The Transportation Services Provider and Shipper both acknowledge, understand and agree that the Transportation Services Provider does not, by virtue of entering into this Agreement with the Shipper, assume the role of or become a Principal Party in Interest ("PPI") pursuant to the US Coast Guard Facility Security Officer/Company Security Officer Program as set forth in 33 C.F.R. Part 104 and the Transportation Security Administration’s TWIC Program pursuant to 49 C.F.R., Part 1572, and nothing within this Agreement creates any obligation for the Transportation Services Provider to ensure that the above, listed vessels either belong to, are operated by and/or are crewed by any TSRA Company which holds or seeks to hold a valid Certificate of Adequacy pursuant to the US Coast Guard Chemical Cargo Tank Program under 46 C.F.R. § 98.01. For any hazardous materials voyage or voyages and exclusive of all prior amounts due and owing by the Shipper to the Transportation Services Provider for services rendered, the Shipper shall pay the Transportation Services Provider for the transportation services rendered after the percentages listed below are deducted from the Basic Charges, Costs, Fees, Prices, Rates and/or Tariffs published by the Transportation Services Provider relative to any service the Transportation Services Provider renders in connection with the hazardous materials voyage or voyages:
1 to % of the Basic Charges, Costs, Fees, Prices, Rates and/or Tariffs for any and all transportation services rendered by the Transportation Services Provider.
2 to % of the Basic Charges, Costs, Fees, Prices, Rates and/or Tariffs for any and all loading and unloading services rendered by the Transportation Services Provider.
3 to % of the Basic Charges, Costs, Fees, Prices, Rates and/or Tariffs for any and all documentation services rendered by the Transportation Services Provider.
4 to % of the Basic Charges, Costs, Fees, Prices, Rates and/or Tariffs for any and all equipment, vessels and other conveyances utilized by the Transportation Services Provider to transport the hazardous materials.
6 to % of the Basic Charges, Costs, Fees, Prices, Rates and/or Tariffs for any and all services, materials and other items used by the Transportation Services Provider to clean any extrication of the hazardous materials from any equipment, vessels and/or other conveyances utilized by the Transportation Services Provider to transport the hazardous materials.
Executing The Agreement
A final and often overlooked step in the process of creating a workable sample transportation services agreement is formal execution, which involves all parties to the contract executing a paper copy of the final agreement that has been thoroughly run through its paces in the preparation process. In many cases, companies can use e-signature software for their one-click solution. However, even the most reliable e-signature platforms cannot account for every situation. For example , you cannot email a rejected contract so you need to rely upon a scanned and signed copy included with an email or delivered by postal mail. When it comes time to perform as a vendor or to bill for goods and services delivered as a company, it is critical that the company representative executing the now-vetted sample transportation services agreement has thoroughly reviewed it. Such a review minimizes misunderstandings and costly disputes that can arise at any stage.