In today's ocean contracting environment, almost every aspect of the contract can be negotiated. With all this flexibility in the contracting process, it is imperative that the relationship between shipper and carrier move away from the adversarial ones of pre-OSRA contracting, and more toward a collaborative one. These 10 tips to follow during the negotiation process will help you manage any preconceived tensions between yourself and the ocean carriers.
1. Allow what you think is enough time for the negotiation process, and then add 15 to 20 business days.
This is especially true if you have multiple trade lanes. While you may have one central carrier contract during the negotiations, understand that this contract must get approvals from various trade pricing groups within their organization.
2. Negotiate with every carrier that covers your trade lanes.
With the constant changes in carrier alliances, you might be surprised as to the coverage and interest level from carriers that you did not think covered your market.
3. Be honest about your volumes and provide accurate forecasts to the carriers.
If you have affiliate companies, add their volumes as well.
4. Understand carrier needs. Ask them where they need cargo/equipment.
Why does that carrier want to do business with you? Are there any specific trade lanes for which the carrier needs your cargo?
5. Make sure you have buy-in from your internal customers and legal team during the whole process.
This will save you valuable time and energy when you are ready to sign a contract.
6. Fix surcharges and time frames of those surcharges in the contract.
Fixing these surcharges and time frames in the contract appendix will supersede any tariff action on those surcharges that the carrier may adjust during the life of the contract.
7. Insert wording that would require mutual agreement for any new charges or rate increases during the life of the contract.
This will require you and the carrier to negotiate any new charges during the life of the contract, and prevent it from being one-sided.
8. Be willing to offer concessions to the carriers in some areas that may not affect you as much as others.
Allow concessions to areas of less importance in order to leverage areas of greater importance for you.
9. Don't have all your contracts expire on the same date.
This is especially true if you have more than three contracts. You need to focus your negotiations on a select few at one time in order to give you and the carrier enough time to finalize a beneficial contract.
10. Expire contracts in the middle of a month rather than at the end of a month.
Carrier pricing groups are not as busy at that time, so your contract will receive a more timely response.
With proper planning on the front end, shippers can develop goals, prioritize them and negotiate them. These 10 tips can help you take control of the unpredictability of your contract, and allow more focus on service and cost issues.
JoC TENs essayist Steve Horton has more than 20 years of international transportation logistics experience. As head of Horton Global Strategies, he negotiates ocean service contracts for numerous importers and exporters worldwide. He can be contacted at firstname.lastname@example.org