Toy shipper Mattel overhauled its agreements with ocean carriers this year to clarify shipper-carrier responsibilities and provide both parties with incentives to fulfil contract terms, a company executive said.
“We spent months with our law department before our last shipping season to really put service back in the service contracts,” said Daniel J. Vandermeulen, Mattel’s director of global procurement.
Vandermeulen discussed the company’s new approach to ocean contracting at the annual conference of the Council of Supply Chain Management Professionals in Philadelphia. Changes included contract provisions to encourage carriers to provide Mattel with adequate vessel space and containers during peak periods such as the pre-holiday season, instead of dividing annual minimum quantity commitments equally over the year.
“We put in language there that for this bucket of time that’s our peak period, you will ship X percent of our MQC. For the other time it would be the remaining percentage of the MQC,” Vandermeulen said.
He said the change was driven by experience during 2010, when space-constrained carriers left many shippers’ cargo on the dock during the fall peak season. “We’re not an allocation-divided-by-52 company, and that’s what some carriers were doing,” he said.
Mattel’s new contracts state that if a carrier rejects more than 10 percent of Mattel’s volume commitments over a two-week period, the shipper can reduce its minimum quantity commitment, require the carrier to pay liquidated damages, or insist that the missed containers are included in the next week’s sailing.
The changes weren’t one-sided, Vandermeulen emphasized. If Mattel falls short of its commitment, it is obligated to pay liquidated damages. The contract also includes quarterly scorecards that reward carriers for good performance.
“If a carrier earns a grade of 90 percent or better in Q2 or Q3, they get a bonus for every container they ship in Q4,” Vandermeulen said.
Scorecard categories include container availability, document integrity, electronic data interchange, space availability and vessel schedule availability. These are rated on a weighted scale.
Separate tables attached to the contract cover operational guidelines including handling of time-sensitive “hot” containers, invoicing, what miscellaneous charges are allowed, requirements for clean trucks and returning empty boxes. There also is a fee matrix for every destination, listing such things as allowable demurrage and detention.
Vandermeulen said 90 percent of the contract’s boilerplate language was unchanged but that after capacity squeeze of 2010, Mattel saw the need to clarify contract languages to pin down each party’s responsibilities.
“Instead of having just rate sheets with some data added, there really is a driving need to have service-oriented contracts,” he said. “We knew that would help carriers plan across the board more appropriately.”
He said Mattel relied on relationships with carriers to ensure adequate capacity in 2010, though it sometimes had to pay extra to secure containers and ship space. He said Mattel traditionally booked about 50 percent of its cargo under minimum commitments but has increased this level to 75 percent.