How Solid Is Your Contract
By Henry E. Seaton

July 1999
Reprinted from

Contracts with shippers and brokers typically cover at least 10 essential issues. Although signing bad contracts can bring high risk, simple and basic language should protect you fully while addressing shipper and broker concerns.
Identity of the parties. The contract should include the legal name and business address of the contracting party, which should be identified as the shipper, broker, freight forwarder, etc., along with its proper docket number, if applicable. Use this information to check credit references and confirm the party's authority, insurance and bonding.

Payment terms. The contract should tie the broker's or shipper's payment obligation to the rates and accessorial charges agreed to in writing. Carriers generally must submit proof of delivery with invoices to brokers for payment. Standard payment terms should be within 30 days of receipt, without offset.

Insurance. You usually must guarantee to the broker and its shipper/principal that you maintain all-risk cargo insurance in a specified amount per shipment, public liability insurance in a specified amount as required by federal regulations and workman's compensation insurance as required by state law. In addition, you often must provide certificates of insurance upon request, pledge to maintain a satisfactory Department of Transportation safety rating and promise to comply with applicable laws.

Governing rules. It's in your best interest to incorporate standard and accepted rules of commerce by reference into each contract. These rules include the terms and conditions of the uniform straight bill of lading, standard claims rules applicable to common carriers and the Carmack Amendment, which establishes claims standards and preempts other state-law causes of action. Use the destination market value as the standard for lost or damaged cargo. Exclude special or consequential damages unless you specifically agree to them.

Released rates. Make sure that you and the broker or shipper agree on the maximum value of any truckload and that you are adequately insured. Then agree in writing to a maximum limit for your cargo exposure on any given shipment.

Shipping document execution. Specify that the terms and conditions of the uniform straight bill of lading apply so that you are not surprised by non-conforming terms you never agreed to accept. Be sure the contract provides that you are listed on the bill of lading as the "carrier of record" and that any broker or third party is shown as the payor of freight charges.

Indemnification. Avoid broadly worded indemnification provisions. It is appropriate, however, for you to hold brokers and shippers harmless from non-cargo claims or losses arising out of negligence or omissions on the part of the carrier, your employees or your agents.

Law and integration. The contract, together with any load confirmation, should contain the entire agreement between the parties. It should specify that signed, written agreement is needed for modifications. Incorporate general principles of federal transportation law and select a forum state for other issues of law, venue and jurisdiction. Non-back solicitation agreement. Many brokers and other intermediaries insist upon agreements not to back solicit their accounts. Ethically, you shouldn't circumvent a broker who first made possible your business with a particular shipper. But as a practical matter, you must be very careful with the scope and application of non-back solicitation agreements. A poorly worded agreement could bar you from any future direct service to a major account.

Ground rules. Finally, many issues, such as detention, C.O.D., salvage and so on, are seldom addressed in multi-page shipper-prepared contracts. Review your rules tariffs to make sure these issues are covered. Where possible, incorporate your tariffs by reference.

These are the elements of a basic, one-time contract for the spot market. By adopting these concepts as standard, carriers, shippers and brokers could do business with unfamiliar parties without fear of nasty surprises.
(703) 573-0700
Copyright© 2006 Law Office of Seaton & Husk, LP. All rights reserved.