shippers do have detailed and well-crafted annual contracts with carriers or forwarders, but the majority of small and medium exporters and importers outside the US often work on the basis of mere rate and transit time quotations (for example via request for quotation or email), not formal contracts. So, can the Bimco/GSF standard contract provide more guarantees and a better framework to work with ocean carriers than the current informal agreements used by many?Comparison of contract terms between different types of shipper-carrier agreementsAny shipper doing business with the US is already familiar with the US system of service contracts. The Bimco/GSF standard contract is close to a basic US service contract, but with two differences:
- Whereas the US service contract must specify either a minimum volume of containers or a minimum portion of containers, the Bimco/GSF contract allows only a minimum volume (“state number of TEUs, if left blank, then this contract shall be null and void”).
- Whereas the US regime makes penalties for nonperformance optional, the Bimco/GSF contract has compulsory penalties for non-performance (see table).
Therefore, in Drewry’s opinion, the Bimco/GSF contract is more binding and has more teeth than both the typical email or RFQ response / rate quotation based informal agreement and a basic US service contract. Performance levels and remedies, such as liquidated damages, are among the most contentious clauses in shipper-carrier contracts.
In Drewry’s opinion, the Bimco/GSF contract does not give equal treatment to the shipper and the carrier concerning penalties in case of non–performance by either; this is a disadvantage. Other standard clauses, such as the requirement that the shipper gives the carrier an agreed number of days of notice of shipments to be carried, is a constructive approach, as it can help carrier planning and reduce the risk of over-bookings or containers being left behind.
The new standard contract form is a good starting point, but Drewry advises shippers and carriers to amend and expand it to include the service requirements and other terms. After all,
every shipper is different and the standard contract form cannot cover these different needs.
Another practice which could justify a new contract is indexlinked container contracts. Drewry is seeing the number of these contracts increase fast. Overall, Drewry is in favour of more formal contracts with clear, agreed performance levels and Key Performance Indicators, a topic at the latest best practice forum of the Drewry benchmarking club.
Watch this space for further changes in this area.
Source: Drewry Supply Chain Advisors