THE ESSENTIAL CHECKLIST FOR TRANSPORTATION CONTRACTS

THE ESSENTIAL CHECKLIST FOR 

TRANSPORTATION CONTRACTS 

Karyn A. Booth (karyn.booth@thompsonhine.com) 

Jason D. Tutrone (jason.tutrone@thompsonhine.com) 

ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C.

Topics for Discussion 

• General Observations About Transportation Contracts 

• Contracting Framework 

• Key Transportation Contract Terms 

Modal Specific Issues 

• Contract Negotiating Strategies for Shippers 

ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 

2

General Observations 

• Significance of contracting has increased following partial 

deregulation of transportation industries during 1980’s and 1990’s 

• Depending on transportation mode regulation may apply to contract 

movements 

Rail contracts are outside of STB jurisdiction 

Truck contracts may include waiver of regulation, except for 

registration, insurance and safety 

Ocean contracts for containerized freight are regulated by the FMC 

Some contracts incorporate specific regulations (e.g. Carmack, safety) 


3

General Observations 

• Contracting between transportation service providers (e.g. carriers, 

3PLs) and customers is the primary means of transacting business 

series of shipments vs. spot shipments 

• Benefits of well-drafted contracts include: 

cost control and predictability 

limitation of risk / liability 

customization to address commercial needs & requirements 

clarity of expectations 

• Contract planning and strategy are important considerations 


4

Contracting Framework 


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• Structure and terms of transportation contracts vary based on 

several factors: 

mode(s) of transportation 

geographic scope (domestic vs. international) 

types of services to be provided (transportation, logistics, customs) 

inclusion of subsidiaries and affiliates 

corporate objectives (e.g. uniformity in terms) 

corporate resources (e.g. contract administration) 

government regulation 

market conditions (capacity, demand, competitive landscape) 


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• Self-contained documents vs. multiple documents 

general terms 

modal specific terms 

• No one-size-fits-all approach 

• Contract structure can be developed to satisfy your primary 

business and service needs 


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Key Transportation Contract Terms 


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Services: Scope and Requirements 

• Clearly define the scope of services to be performed: 

mode(s) of transport 

type of service (e.g., transportation, brokerage, freight forwarding) 

geographic scope (e.g., interstate, intrastate, foreign, Canada/Mexico 

cross-border) 

exclusivity of provider 

consider including SOPs as contract attachments to clarify operations 

• Develop service requirements that promote efficiencies, reliability, 

and planning 

capacity needs / guarantees 

equipment availability and condition (tractors, trailers, containers, 

chassis, railcars) 

e-commerce / communication 


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Services: Scope and Requirements 

• Measure carrier performance by developing indicators for on-time 

deliveries, cargo loss/damage, equipment supply, etc. 

Some contracts include remedies for failure to meet the indicators (e.g. 

right to cure, termination, financial penalties) 

• Address specific service issues and concerns 

Refused deliveries (notice, cargo disposition instructions, liability for 

storage or other assessorial charges) 

Late deliveries (delay damages, plant shut-downs) 

Rolled cargo (int’l ocean) 


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Minimum Volume Commitments 

• A minimum volume commitment (MVC) may be a standard 

commercial practice or required by law 

• Truck and Air: MVCs are less common and limited to special 

circumstances 

• Rail: MVC is standard commercial term 

• International Ocean: MVC is required by law 

• Failure to meet MVC can lead to financial penalties / liquidated 

damages 

• Volume commitments can be used to obtain leverage and have an 

impact on rates, capacity guarantees, termination, and force 

majeure 


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Volume Commitments (Int’l Ocean) 

• Carriers prefer to spread cargo volumes evenly throughout the term 

of the contract 

Problematic for seasonal shippers or for those with unpredictable 

demand 

• Consider capacity needs beyond the volume commitment 

• Strategies when incorporating a volume commitment 

High commitment can improve rate levels and space guarantees 

Low commitment can reduce exposure for liquidated damages 


12

Licensing, Authority, and Safety Fitness 

• Service providers should warrant that they and their subcontractors 

have and will maintain, all necessary licenses, permits, and 

authorities to conduct the services at no additional cost 

• Shippers can monitor compliance on their own or by requiring 

immediate notice of revocation or other adverse action 

• Consider termination upon breach of licensing, authority, and safety 

fitness requirements 

• Truck Issues: 

Specify FMCSA safety fitness rating (Satisfactory, Conditional, Unfit) 

requirements based on your risk preferences 

Set BASICs performance standards, if desired, under CSA 


13

Contract Term 

• A longer duration can increase stability and predictability in freight 

costs 

May be desirable if market conditions favor rising rates 

• Shorter terms may be desired if there is over-capacity, limited 

volumes, falling rates, or a new service provider is involved 

• Consider contract cycles that are aligned with your business needs 

(e.g., calendar year, fiscal year) 

• Consider evergreen clauses, i.e. automatic renewal 

• Term can affect contract negotiation strategy—longer terms equate 

to greater freight spend and may impact negotiation of liability & 

other terms 


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Rates 

• Rates may be “all-in” or itemized, depending on the mode of 

transportation and party preferences 

• To promote rate stability, limit all rates and charges to those in the 

contract 

Require rate changes or additions to be mutually agreed and set forth 

in a formal amendment to contract 

Be wary of incorporation of carrier tariffs and shipping documents which 

can result in rate add-ons, surcharges, etc. 

Int’l Ocean: Address general rate increases, peak season charges, and 

unilaterally imposed rates and charges 


15

Payment 

• Specify invoice requirements (e.g., frequency, contents) 

• Define responsibility for payment of disputed charges and resolution 

of such charges 

• Address provider responsibility for payment to its subcontractors, 

including indemnity for payment claims by subcontractors 

• Consider creating right to setoff debts owed by carrier (e.g., cargo 

loss and damage claims) 

Usually difficult to obtain 


16

Liability: Cargo Loss and Damage 

• Evaluate the level of protection required for your commodities 

• Define the period of liability using events, provider’s level of control 

over the cargo, or both 

“. . . the provider has care, custody, or control over the cargo, which 

provider will be deemed to have from the time the cargo is tendered to 

provider at the origin through delivery at the destination” 

• Address how liability will be measured (e.g., full actual value, 

replacement value, invoice value) 

• Specify any limitation on liability 

Higher limits usually result in higher rates due to provider’s exposure 

Consider the value of the cargo 


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• Truck 

Cargo damage occurring during truck carriage covered by a bill of 

lading is governed by the Carmack Amendment 

• Carmack provides for full loss and damage coverage but allows for liability 

limitations or released rates via “agreements” 

Some contracts incorporate the Carmack Amendment; and others 

include liability limits 

For cross-border shipments to Mexico, be wary of application of low 

liability limits under Mexican law 


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• Rail 

Cargo damage occurring during rail carriage covered by a bill of lading 

is governed by the Carmack Amendment 

• Carmack provides for full loss and damage coverage but allows for liability 

limitations via “agreements” 

Some rail contracts incorporate the Carmack Amendment 

No liability limit imposed by law but rail circulars may impose a limit of 

liability 


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• Air 

Most international shipments to/from US: Montreal Convention limits 

recovery to 19 SDRs ($29.08) per kilogram 

Domestic US: No liability limit imposed by law but most contracts 

incorporate a per pound limit 

• Ocean 

US Law: Carriage of Goods by Sea Act (COGSA) provides for recovery 

of $500 per package 

• Package definition impacts recovery 

Some shippers negotiate application of Hague-Visby Rules, which 

permit recovery of 666.67 SDRs ($1,020) per package or 2 SDRs 

($3.06) per kilogram, whichever is higher 


20

Delay 

• Determine the effect of delays and need for protection 

• Define the scope of liability (e.g., plant shutdown costs, expedited 

transportation costs, chargebacks) 

• Difficult to obtain reimbursement for indirect consequences of 

delays 

• Carriers may be more agreeable to delay liability if liability limits 

apply 

• Air 

Most international shipments to/from US: Montreal Convention limits 

recovery to 19 SDRs ($29.08) per kilogram 

Domestic: no liability limit imposed by law 


21

Delay 

• Ocean, Rail, Truck 

To recover for delay liability a shipper must prove its delay damages 

were reasonably foreseeable 

No delay liability limit imposed by US law 

If on-time performance is important, shipper should attempt to negotiate 

delay liability protection 


22

Cargo Claims 

• Assess your ability to discover cargo damage and file a claim 

• Address claims filing deadlines, as well as the deadlines for the 

carrier to acknowledge and process the claim 

• Consider requiring a written explanation for any denial 

• Be wary of agreeing to file a claim as a prerequisite to a lawsuit 


23

Cargo Claims 

• Rail and Truck 

9 month minimum claim period by law; claim filing is a prerequisite to 

lawsuit 

2 year minimum statute of limitations period applies 

Can negotiate alternative claims and SOL periods by agreement 

• Ocean 

A notice of claim must be made immediately for apparent loss and 

damage; 3 days for non-apparent loss and damage; not a prerequisite 

to filing a lawsuit 

Lawsuits for loss and damage must be filed within 1 year after delivery 


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Cargo Claims 

• Air – Montreal Convention (most international US shipments) 

Claim is prerequisite to lawsuit 

Claims must be filed immediately, but in no case later than 14 days for 

damage/loss and 21 days for delay 

Lawsuits must be brought within 2 years of aircraft arrival at destination 


25

Indemnity 

• Parties should include provisions requiring one or both parties to 

indemnify the other against liability, claims or damages 

• Indemnity may cover negligence, contract breaches, failure to 

comply with laws, conduct of third parties 

• Claims subject to indemnity could include those of the contracting 

parties or be limited to claims by third parties 

• Truck Issue: Be wary of anti-indemnity statutes 


26

Insurance 

• Assess the potential liability you may incur for acts by the carrier 

• Insurance coverage should be sufficient to cover such liability risks 

(e.g. commercial liability, loss or damage to cargo, worker’s 

compensation, errors & omissions) 

• Coverage can be used to remove “deep-pocket” risk (i.e., the 

incentive to a third-party for naming you in a lawsuit for damages 

caused by carrier) 

• Address material changes to insurance coverage and termination 

right if coverage is not maintained 

• Additional insured status and right to certificates of insurance 

• Specify whether carrier’s insurance will be primary to yours 


27

Shipping Documents 

• Shipment documents serve as a receipt for the cargo, provide terms 

and conditions for the transportation, and can function as 

documents of title 

• Contracts should specify that all received cargo will be assumed to 

be in good order and condition unless otherwise noted on the 

shipping document 

• Be wary of tariffs or shipping document terms (e.g., bill of lading 

terms) incorporated in the contract 

The provider can change the terms and conditions in its documents 

unilaterally 

Contract terms should prevail in case of conflict 


28

Termination 

• Contract may allow a party to terminate under a variety of 

circumstances: 

For convenience 

Material breaches 

Bankruptcy or insolvency 

Change in control (sale or mergers) 

• Termination may require notice 

• Parties may provide for reduction of volume commitments in certain 

cases 

• Consider the time it will take to find a replacement carrier/provider 


29

Hazardous Materials 

• Parties may require the carriage of hazmats, or give the carrier the 

right to reject such carriage 

• Both parties should warrant that they will comply with all applicable 

laws and regulations 

• Address responses to incidents, including clean-up and reporting 

• Consider indemnification for releases 


30

Cargo Liens 

• Providers generally have a common law right to a lien on cargo for 

unpaid freight charges 

• Consider eliminating or narrowing this right by contract 

• Address lien rights of the provider’s subcontractors 


31

Force Majeure 

• Force majeure provisions excuse a party for non-performance of its 

contractual obligations, generally when the non-performance results 

from an event that is beyond the reasonable control of the party 

• Parties should define the force majeure events 

• Because providers are more susceptible to a FM event, FM clauses 

usually benefit providers 

• Consider narrowing to breaches solely arising from the FM event 

and not the negligence or willful misconduct of the provider 

• Parties may negotiate terms requiring notice of force majeure and 

providing for cargo handling during force majeure period 


32

Compliance with Laws 

• Contract should require both parties to comply with all applicable 

laws and regulations 

• Some contracts include special requirements for hazardous 

materials, security, import/export, etc. 

• Address indemnification for fines, penalties, etc. arising from noncompliance 

• Specify who will be responsible for compliance costs 


33

Choice of Law and Forum 

• Choose the body of state law that is most favorable, keeping in 

mind anti-indemnity statutes and other unfavorable laws 

• Consider specifying the court that will hear claims and disputes 

under the contract 

Many companies select a choice of forum that matches the State 

choice of law 

Some companies prefer to select local jurisdictions 

Federal courts may be more familiar with disputes involving interstate 

commerce 


34

Waiver 

• Contracts should specify that if a party waives any breach of a 

contract term, that waiver does not: 

Affect the party’s right to later require performance of the term 

Constitute a waiver of a subsequent breach of that term 

• Truck contracts often include a waiver of regulation, except for 

licensing, insurance and safety 


35

Confidentiality 

• Contracts are not confidential unless you include a confidentiality 

provision 

• Wide range of confidentiality clauses exist in contracts 

Specify any exceptions to non-disclosure obligations (e.g. attorneys, 

consultants, freight auditor, freight forwarders) 

• Confidentiality can facilitate contract negotiations and result in more 

customized terms and conditions 

• Consider consequences for breach 


36

Assignment 

• Parties may want to limit each other’s ability to assign their 

contractual duties or rights to a third-party 

• Consider limiting assignment to specific assignees (e.g., 

subsidiaries and affiliates, parent companies) 

• Specify requirements for any notice of assignment 


37

Severability 

• If one term is invalid, a court could find that the entire contract is 

void 

• Address what happens if a provision is found void and 

unenforceable 

The provision is revised to carry out the intent of the parties 

The invalid portion of the provision will “drop out” of the contract 

The entire provision will “drop out” of the contract 


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Contract Negotiation 

Strategies For Shippers 

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Identify Your Contract Objectives 

• Strategic and well-planned contract negotiations can help shippers 

achieve more reliable service and predictable freight costs 

• Do your homework and develop your contracting goals 

price stability 

on-time performance 

capacity 

equipment 

duration 

liability 

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Identify Your Contract Objectives 

• Consider company changes impacting cargo volumes and service 

needs 

e.g. acquisitions, sale of affiliates, new O-D pairs or trade lanes 

• Evaluate your current carriers’ performance and recent contracting 

experience 

address any problems or deficiencies in the contract 

• Prioritize your contract objectives to help guide negotiations with 

your carriers/providers 

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Control the Playing Field 

• Prepare your own contract form tailored to meet your business 

objectives 

different commodities/industries have different service needs 

success may vary by mode and market 

• Negotiating from the carrier’s form is a disadvantage 

• Review and update your contract forms to address changing market 

conditions and business requirements 

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Consider a Bidding Process 

• Competitive bidding process (e.g. RFP) can help achieve 

competitive pricing and increased service protections 

• The bid structure is important 

timing for bid response and negotiations 

confidentiality 

include contract form 

• Do not be afraid to move your business 

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Look for Ways to Increase Leverage 

• Maximize your contract volumes 

Contract scope: consider expansion of geographic reach (e.g. 

international) or integration of services (multiple modes, related 

logistics) 

Contract parties: look to affiliates, joint contracts with unaffiliated 

shippers, use of transportation intermediaries and shippers’ 

associations 

• Consider joint and several liability for contract breaches 

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Look for Ways to Increase Leverage 

•Help your carriers/providers meet their contract 

objectives 

shipment planning and forecasting 

equipment repositioning 

off-peak cargo, bunker provision 

volume commitments 

avoid a “price-only” focus 

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THANK YOU! 

Karyn A. Booth 

202.263.4108 

karyn.booth@thompsonhine.com 

Jason D. Tutrone 

202.263.4143 

jason.tutrone@thompsonhine.com 


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THE ESSENTIAL CHECKLIST FOR TRANSPORTATION CONTRACTS

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