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):
Broker Carrier Agreement
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.
Load Tender and Confirmation
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.
Rate Confirmation
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.
Accessorials
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.
Bill of Lading
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
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.
Special Consideration for Of-Choice Contracts
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 and their impact on contracts
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:
- EXW – Ex Works (insert place of delivery)
- FCA – Free Carrier (insert named place of delivery)
- CPT – Carriage Paid to (insert named place of destination)
- CIP – Carriage and Insurance Paid To (insert named place of destination)
- DAP –– Delivered at Place (insert named place of destination)
- DPU – Delivered at Place Unloaded (insert named place of destination)
- DDP –– Delivered Duty Paid (insert named place of destination)
- FAS –– Free Alongside Ship (insert named port of loading)
- FOB – Free on Board (insert named port of loading)
- CFR – Cost and Freight (insert named port of destination)
- CIF – Cost Insurance and Freight (insert named port of destination)
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.
Keep an eye on contracts and freight spend with SONAR
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.