Failure to Meet Obligations

Q: In the maritime sector, much attention has been paid to the peak season, the shortage of space and the increase in ocean freight costs this year. What a crazy year!

To that point, I thought I would relate this story to you and ask your opinion about the carrier’s responsibilities.

We took a huge increase in ocean freight rates over last year, about 40 percent. Because of the instability in rates last year, and carriers coming at us every few months asking for additional surcharges, and because of space issues, we were very careful to have our new contracts include space and rate guarantees. It is important for us to know our costs for the year and to have stability when costing our product.

Each provider we signed with agreed to a “no peak-season surcharge,” “no general rate increase” and a “no new surcharge” clause. In addition, we had them include specific language guaranteeing at least our MQC (minimum quantity commitment) allotment on a weekly basis. Considering our rates are higher than they were in the past four years, it didn’t seem out of the ordinary to request these provisions.

These guarantees have proved to be a good thing. We’ve avoided all the increases that have come along, and we’re getting our MQC with most of the carriers, albeit nothing above and beyond.

However, one carrier isn’t providing all of our allotment. It’s told us its ships are full, and it’s doing what it can. It’s asked for a peak-season surcharge. But we’ve pointed to the fact that it signed a contract that allowed for no PSS, and guaranteed our MQC. As a result, the carrier is only providing about half of what it’s supposed to.

Today I got a call from a new freight forwarder advising that this carrier called to say it’s putting in an “extra loader.” This freight forwarder can get about as much space as I need on this vessel, but at a much higher price than what I currently pay. And this is with the carrier that said its ships are full!

I confronted this steamship line about the forwarder’s offer, and my sales rep was embarrassed that the forwarder told me very specifically that the carrier had called it to sell space.

This seems deceitful to me, and it certainly doesn’t go very far to mend the fragile relationship between shippers and carriers. I think this extra loader should be used first to accommodate the MQC of the carrier’s current customers, especially those of us with written clauses in our contracts. Instead, it is being offered to the highest bidder.

If the carrier brings a loader into service, wouldn’t it be obligated contractually to provide at least the MQC space to its current customers before offering space to others?

A: Sure seems so to me.

I’ve been reading, especially in the news pages of this publication, about the unexpected capacity problems in most of the major trades this year, about the early advent and expected late falloff of the peak capacity season, and your tale strikes me as a prime illustration.

Basically, it sounds as though you negotiated yourself an extremely good deal by being farsighted about these capacity problems — a deal so good, in fact, that this one carrier isn’t inclined to honor it. It’s in its economic interest to short-sheet you in favor of other, higher-paying shippers, and it’s going at it with a will.

Try this one: Assemble as much evidence as possible of the fact that the carrier really does have capacity available to meet its commitment to you and is simply ignoring its contractual obligation in favor of selling to other, higher bidders. Get as much documentation as you can.

Then tell the carrier that if it can’t live up to it’s agreement, you’ll be obliged to seek out extra capacity elsewhere — and will then sue it for the difference between what you have to pay for it and what your contractual cost to the carrier would have been.

Could you win such a lawsuit? I have no idea, inasmuch as I’m not privy to the details of your contract. But the carrier probably won’t know, either, and I think it’ll likely cave in rather than risk the litigation.

Of course, be aware that you may be burning your bridges with this carrier for next year. Talk about fragile relationships! But it’ll help you settle this year’s problems, at least.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, Contact him to order the 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.

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