FMC urges continued improvement of contracts
Federal Maritime Commission Chairman Richard A. Lidinsky Jr. urged shippers and carriers to continue efforts to improve service contracts, saying there is 'remarkable consistency' in the advice being given by the FMC, and shipper and carrier groups on how contracts can be improved.
Using what he said was his 'bully pulpit,' at Wednesday's regular FMC meeting, Lidinsky listed what he said were some of the most important lessons he has drawn from the industry's 'roller-coaster experiences in 2009 and 2010:'
' If shippers have time sensitive cargo, they should not exclusively focus on the rate in a contract since 'when capacity is tight, reliable service can be more important.'
' Shippers should try to fine-tune minimum quantity commitments. Annual MCQs are not a shipper's only option, and 'rarely sufficient to ensure your service needs are met.' He noted many shippers give a conservative MQCs to avoid liquidated damages or renegotiation. 2010 showed that when capacity is tight, this approach is insufficient.
' While carriers will sometimes divide a shipper's MCQ by 52 to determine their weekly commitment, this is 'rarely ideal for a shipper.' He suggested shippers and carriers should discuss how volumes may fluctuate and consider negotiating a 'floor' and a 'ceiling' for weekly or monthly volume commitments.
' Forecasting can be incorporated into contracts so carriers know when volumes will increase or decrease, and better plan equipment positioning and vessel space.
' Bonuses or incentives can encourage more reliable service and discourage cargo rolling by carriers. Carriers may want incentives or performance indicators that discourage 'no shows' or 'phantom bookings.' While liquidated damages or credits have traditionally been handled at the end of a service contract term, there is nothing that prevents the contract from specifying that credits or incentives be exchanged more in real time.
' Contracts should be clear about what surcharges will be added to rates and particular attention should be paid to 'peak season' surcharges as 'these charges have become increasingly fluid and a source of unpleasant surprises for some shippers.'
' Surcharges for bunkers, terminal handling at destination or port security should be based on agreed-upon, transparent formulas.
' A tiered approach of informal resolution, mediation and arbitration before the parties resort to litigation to resolve disputes should be considered. Lidinsky suggested taking advantage of the FMC's Rapid Response Teams and Consumer Affairs and Dispute Resolution Services office to help resolve disputes.