Supply Chain Contracts: Read Before You Sign

By Ronald C. Chauvel, Esq.
Many transportation agreements include voluminous small print boilerplate terms that are presented and executed without much review or negotiation. These contracts are often presented by large entities as basically "take it or leave it" agreements. Such agreements are utilized by steamship companies, air freight carriers, forwarders, logistics providers, railroads, and overnight carriers. They are the norm in the industry today.

Transportation agreements are generally executed by agents, employees, or others well down the chain of command. Oftentimes, transportation contracts are executed at the dock, warehouse, distribution center, railhead or similar site. One wonders whether the real decision makers employed by the shipper or others are aware of the terms agreed upon.

Generally, everything works out fine and there are no problems. However, sometimes issues arise and in those rare cases the parties are almost always shocked to learn that onerous and one-sided contract provisions will be strictly enforced.

For instance, the owner of a valuable Arabian horse sends the animal to a farm. At some point, the owner calls the farm and requests that the horse be shipped back to the owner. The farm arranges the transportation and a ranch hand signs a bill of lading that limits the carriers liability to $100. The carrier is negligent somewhere along the line and the horse has to be euthanized.

Or, a shipper ships containers of refrigerated fruit to another country via steamship. The steamship bill of lading includes a provision that all disputes must be submitted for resolution to a forum in Hamburg, Germany. The refrigeration unit on the ship fails and the fruit is destroyed. The steamship line takes a hard line and fails to agree to fair compensation to the shipper.

Many overnight and express carriers require agreements that foreclose rate audits or disputes, even where the rates assessed are inaccurate or exceed agreed upon charges. If the shipper does not raise the rate issue within a set number of days (which can be as little as 10 or 15 days after the shipment or billing), then the shipper is contractually prohibited from seeking a refund. The shipper may end up paying excessive rates as it does not realistically have the ability to audit within such time limits.

These are very real cases, and there are hundreds and hundreds of other examples where the small print in transportation contracts has resulted in unfair and damaging results.

So, what can be done about these issues? Most importantly, make sure that contracts are reviewed in advance so that you know what the terms state. If the terms are too one-sided or unacceptable, then attempt to negotiate changes. If the other side refuses to negotiate, then consider another source for your shipping needs.

Smaller shippers may not have the leverage to persuade large transportation entities to revise or negotiate agreements. But, they may be able to make alternative arrangements to protect their interest, such as obtaining insurance for losses that will not be covered. Larger shippers generally do have such leverage and should exercise their market power before issues and losses arise. Even better, large shippers may be able to develop and impose on the other side their own more reasonable agreements.

Even the most vigilant shipper will from time to time be confronted by vexing and large dollar issues in the complex legal environment that applies to domestic and international transportation of freight. In these instances, if the applicable contract seems grossly unfair, make sure to seek expert advice. The courts are not always willing to strictly enforce unfair and unreasonable provisions.
About the Authors:
Mr. Chauvel practices with the firm of Greene, Chauvel, Descalso & Minoletti in San Mateo, California. He practices transportation law and may be reached at 650/573-9500 or at ron@greenechauvel.com.
September 2009
See the recipients of the 2009 Top 25 Supply Chain Executives Award.