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DEMYSTIFY THE SMALL PRINT IN YOUR CARRIER CONTRACT
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By Matt Bohn
ave you ever taken the time to fully read your carrier agreement from UPS or FedEx? Generally, most shippers have not. Yet, fully reading and understanding all of the non-pricing components of a carrier agreement has become more important now than it has been in the last 15 years. In the past, shippers typically only needed to concern themselves with making sure discounting was correct or that their revenue bands were appropriate. However, in the last two years, we have seen far more one-sided punitive language being added into agreements by UPS and FedEx than we ever have in the past, and shippers need to be aware of these clauses. Here are the items that we see most frequently: Early termination clauses: Most of the time, these clauses require the shipper to ship with their carrier for the duration of the contract. They typically do not allow the shipper to negotiate even if the carrier introduces new surcharges or
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terms. For example, when the carriers changed the Additional Handling — Weight trigger from 71 to 51 lbs., shippers with this clause and a large number of affected packages would see massive increases to their bills. They had no contractual recourse despite this surcharge being non-applicable when the agreement was signed. These charges are usually a percentage of revenue (e.g., 2%), a flat fee (e.g., $200,000), or allow the carrier to terminate the shipping agreement. Risk of enforcement: Medium with UPS, low with FedEx. UPS often enforces these when a customer leaves but is less likely to do so in response to one or two asks, especially in response to a new charge, an acquisition, or new product line. FedEx rarely enforces these, in our experience, but that’s not to say its mandate on these won’t evolve in the future. Minimum commitment clauses: Similar to the above, these require a volume commitment and also come with a penalty. For example, we have seen clauses that require shippers to commit a percentage of their volume (e.g., 10,000 packages monthly) or a fixed annual spend (e.g., $20,000,000) or face financial penalties similar to the early termination penalties. Often, these will not contain language like “unless shipping decline is outside of customer’s control,” which is especially punitive. Risk of enforcement: High with UPS, low with FedEx. Although anecdotal, it seems that UPS can enforce these systematically via its standard invoicing process. This eliminates the potential of receiving a waiver from a sympathetic sales rep who might be more willing to understand why your revenue is down. FedEx still likely processes these manually and is thus less likely to enforce these. Generally, its reps have more flexibility to make exceptions here. What about me? Interestingly enough, we have seen carrier agreements with commitment language — say 95% — and also refuse to actually pick up 95% of the customer’s packages! It’s critical that if you are a larger shipper considering signing commitment language like that, you also require the carrier to pick up said volume (or else you’d be in violation).