Ocean Carrier Service Contracts

Every spring, the buzz in the shipping industry turns to the renewal of service contracts. These are the contracts between carriers and their customers that stipulate rules for special pricing that they are willing to offer. Usually these contracts are for a specific timeframe within a year, but many have been the same for several years with small changes made at renewal times. When companies partner with shipping lines in this way it can be good for both sides. For the shipping line, it makes it easier to plan ahead and forecast their future shipping needs. For customers it allows for better pricing and sometimes special considerations in moving their international freight.

When writing these shipping contracts, many different aspects can be taken into account. Shipping lines are usually looking for a volume commitment of containers to be shipped in a certain trade lane.  Their customers are looking for pricing for these commitments that will not change with general rate increases (GRI) or will be spelled out in the contract. Other add on fees must be specified on top of the ocean freight rates such as terminal handling charges (THC) and peak season surcharges as well as bunker adjustment factors (BAF). 

It is important that both sides are clear on the expectations of the service contract and their obligations. In fact if there is a dispute, how to handle it should be stipulated in the contract as well. Service contracts can be a great tool for shippers and ocean freight carriers. If they are set up well, these contracts will allow for smooth shipments and reasonable rates that are beneficial to both sides.