In modern freight management, a contract is any type of executable function. Every tender market interaction involves a contract upon load acceptance. Every final invoice is technically a contract, setting standards for settlement. With that broad definition of contracts, it’s easy to see why companies get overwhelmed. However, the types of freight contracts can be boiled down to these seven (image of the seven, followed by an explanation of each):
The broker carrier agreement is most important when a broker posts a load and offers a given rate. Upon acceptance, that agreement is executed. Appropriate freight data is generated, such as liability, insurance, settlement processes and the agreement date.
The load tender contains all the details pertaining to the shipment and is primarily used by the carrier. With that being said, the load tender and confirmation can go through an intermediary, like a freight broker.
The freight rate confirmation is an agreement between the shipper, third-party provider, if present, and carrier that details the shipment rates. All brokers must provide rate confirmations to carriers before pick-up. That critical function helps to avoid surprises in billing.
There will be times when the rate doesn’t entirely cover everything. That’s where accessorials come into play. These are the additional payments that a shipper agrees to, understanding that the carrier will exercise the best judgment to make changes and assess such accessorial charges. For example, extra equipment, handling or added peak surcharges may be included.
The bill of lading is the receipt for freight delivery by a carrier to the consignee (driver). It contains all the necessary information and rate data to proceed with transportation.
Load board contracts are a little different. These follow a process similar to a broker carrier agreement. However, they may involve added stipulations or requirements for using the board.
And lastly, another cornerstone of contracts involves the of-choice designation, such as shipper-of-choice, carrier-of-choice, and broker-of-choice statuses. These special designations may come with added stipulations and requirements, such as tendering a set volume of loads or offering skip-ahead benefits to partnering drivers upon arrival at the yard.
Incoterms are essential to understanding freight contracts too. And as explained by the International Trade Administration, Incoterms “are a set of 11 internationally recognized rules that define sellers and buyers’ responsibilities. Incoterms specifies who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.” They include:
The point of Incoterms is simple. They avoid ambiguity and ensure all freight management parties know who is responsible for freight at each stage of scheduling, transform, and contract management.
Control over the types of freight contracts is critical to maintaining control over freight costs. Without an understanding of freight contracts, increasing efficiency and lowering total costs will be difficult, if not impossible. Fortunately, SONAR can help your company realize the fullest potential by accounting for the various contracted costs and differences that affect landed costs. Request a SONAR demo online to learn more.
