Don't Let the Contract Kill the Deal

June 23, 2022
Cassandra Gaines
Eric Tewes, CTB (VP Logistics)

Having a clear contract that includes everything you need to transport freight without any hiccups along the way is crucial. Here are some of the most critical, high-level aspects you should consider when reviewing your contracts for FTL shipments. But first, let’s dive into three key elements to set your legal team up for success.

How to Setup your Legal Team for Success

Authorizations

Everybody knows some of the things that go into each contract, but there should be someone designated who has the right to approve the contract or approve the language that the client wants to use.  

Know your Company thresholds/Risk levels

Knowing and outlining what you can risk as a company and what is an acceptable “cost of doing business” is key to success. Work with upper management ahead of time to create thresholds that align with company goals.

Makes sure the right people are talking to legal

Sales reps should not be making or reviewing any contracts; your leaders, managers, directors, and VPs should handle the contracts directly with your lawyers. Make sure you educate your sales reps on why certain amendments are important and utilize their relationship with the customer/contact to aid when pushing for contractual changes that the legal team has made/approved.

Map out processes

Make sure your sales reps or executives are the ones who prioritize each contract, considering the relevance of each client. A great way to do this is by creating excel spreadsheets and sharing them with the required people, so everyone is on the same page.  

Use lawyers for high-level decisions

You can delegate some operational tasks to an employee you have trained instead of having your lawyers caught up on editing and redlining a contract.

What to consider in your shipper-carrier or broker contracts

When talking about that shipper-carrier contract, or shipper-broker contract, these are the 5 things you need to consider.  

1. Don’t pretend to be a carrier and don’t control the carrier.  

Usually, the contract will say you’re a carrier, which may become risky. At times, simply changing the labeling from “Carrier” to “Broker” may not be enough to protect your company, thoroughly reading and understanding the context of the said paragraph is needed to get a full scope of the exposures. Therefore, you must balance the potential revenue you will get from that client with the amount of risk you may have. Reserve this type of risk for companies with more significant contracts.  

2. Indemnification

Indemnification means if the carrier does something and the shipper gets sued, or the broker does something, and the carrier gets sued for it, the shipper or carrier would want you to step in and pay for the defense of the lawsuit and the damages.  

The insurance will cover it; therefore, you must first talk to your insurance broker. But this must be included in your contract, depending on your insurance limits. Verify that the Shipper is held accountable for their actions as well in this section.

3. Insurance

Carrier and brokers are not insurance companies for the shipper’s goods. You must know the value of the load to know which carrier you’re going to use and their insurance. Limit the amount of insurance to the ones that are needed.    

4. Cargo claims

What will happen when the shipments are damaged? It’s essential to have a cap on the contract—for instance, 100,000 dollars per FTL. Ensure there are no exclusions in your cargo insurance and that the shipper is not giving you goods commonly excluded from your carrier insurance.  

Pro tips!  

  • Pretend you don’t have insurance. This means you focus on what insurance your carrier has so you know exactly what they cover and there are no issues along the way.  
  • Watch out for terms that immediately make you liable for the cargo. For instance, the wording that refers to “adulterated goods.”  
  • Make sure you have deadlines for the cargo claim processing. This will depend on your workflow. Try to make it 180 days.  
  • The Carmack amendment governs cargo claim liability at all times.  
  • Make sure no special or consequential damage is included.  
  • Freight claims should be processed under federal regulations.  
  • Watch out for “rights to Offset” from current/past-due funds.