HAULAGE CONTRACTS (PART ONE)

It can be a very exciting time when a haulage firm has just ‘landed’ a heavy contract with a major company or blue-chip. Such times could result in all caution being thrown to the wind with the haulage business owner having his eyes mainly set on the expected returns. This may not be too healthy! Haulage contracts could be the best thing that can happen to a haulage firm especially when it comes to major clients that seek to work with firms in the medium to long term. This is why it is imperative that all documents, from brief one-off delivery contracts to long-term heavy haulage contracts, are written up flawlessly. It is also why it is very important that both parties jointly and individually scrutinize details of contract document meticulously before committing to the terms and conditions.

Haulage contracts are an essential part of an industry where contracts serve the dual purpose of a guarantee of service and proof of value exchange. It is essential to know the different types of agreements and what stipulations are important and necessary and what can be discountenanced without necessary hurting the interest of parties involved.

A haulage contract is a variant of transport contract agreement clearly defining the legal relationship existing between the two parties or entities that draw it up. It specifies how the relationship will be moderated and what the value proposition is for both parties. In many cases this can mean that a haulage contractor and its counterparty will have to rummage through several legal nuances to actually know what they are agreeing to. The benefit of this exercise can be very profound. A clearly defined legal contract protects the contractor, firm and the customer.

In haulage contracts, the definitions applied in the document are of critical importance. If necessary, engaging legal interventions may not be too out of place to get around terms that seem to be missing or incomplete. These terms are often the source of disputes later on. It will be dangerous to assume that the document protects you specifically. Questions should be asked or clarifications sort for sections that are not clear.

Below are some of the fundamental aspects that every haulage contract should explicitly address:

PARTIES INVOLVED IN THE CONTRACT

We stated earlier that haulage contract defines the term of reference between entities comprising a firm-client and the haulage company. It therefore follows that a good haulage contract must start out by identifying and defining the legal status of both the customer and the hauler. This part should also state the transportation services offered and the transportation logistics needed to plan out the trip. All these things need to be clarified right at the very beginning to prevent anyone from misunderstanding any parts.

SCOPE OF SERVICES TO BE RENDERED

Scope of services to be rendered by the haulage company has to be clearly stated. It must state what the haulage company will be carrying and how items/goods will be carried in order to make sure that services are not overextending to areas not covered by the contract. Carrying heavy loads to the agreed upon warehouse is one thing, but handling multiple drops in a single trip or incorporating return loads are entirely different spectra that must be clarified from the onset.

Non-exclusive contract Vs Dedicated Assets: Major companies engaging the services of multiple corporate haulage partners would normally have contract documents that appear like a standard form. Not much of a problem for a haulage firm that recognizes that it has a right to demand that all terms and conditions are to be strictly negotiated. A haulage company is not under compulsion to agree to terms that have clauses that are detrimental to the interest of its business or investment; a bulk of which were probably financed by debt instrument. Such ‘Standard Documents’ would naturally require dedicated assets from the haulage companies while conferring ‘non-exclusivity’ on the nature of engagement meaning that the Company is at liberty to engage services of multiple haulage companies. The following statement is common to a number haulage contracts:

The Company hereby appoints the Transporter as a non-exclusive carrier to transport and deliver the Products and the Transporter accepts the appointment, on the terms and conditions set out in this Agreement. Nothing in this Agreement shall confer on the Transporter any exclusive right to transport and deliver all or any of the Products or restrict the Company from transporting and delivering all or any of the Products or appointing other carriers to do so.

Hence when talking about scope, the first question should be; what minimum volume of work does the agreement guarantee? A non-exclusive but highly restrictive contract is of no value to you if it does not assure you of minimum quantity of work; at least sufficient to cover your operational cost inclusive of maturing obligations from your bankers. We recently learnt of a company that is facing foreclosure right now simply because its huge investment on a number of trucks valued at several billions of naira and financed by a bank loan is lying fallow because a client is carrying out a comprehensive production process overhaul that has taken several months already!

Sub-contracting: Terms must be inserted to accommodate circumstances under which the haulage company may not be able to perform all jobs assigned such as during repair and maintenance period. To this end, the contract should state whether or not sub-contracting is permitted for the extra work or as a temporary bridging option during scheduled downtime. Where no room is given for sub-contracting and provisions for unavoidable downtime not properly defined, failure to deliver when called upon may be termed a breach of contract which may lead to contract termination.

SERVICE CHARGES, PAYMENT ARRANGEMENT AND INDEMNITY CLAUSES

Freight Rate & delineated delivery locations: Service charges or freight rates should be negotiated, agreed upon and properly inserted in the contract papers. Some major companies delineate delivery locations into clusters or groups. A haulage contractor should seek to know what clusters have been assigned to it and the prevailing rates for each location in the cluster. It should also seek to know whether groups or clusters can be juggled and under what conditions such can happen. This may be necessary to insulate the haulage firm against service disruptions or stagnation that may result should there be a critical challenge with an assigned cluster.

Determining Fair and Competitive Rates: Both parties should agree to modalities for arriving at a fair and competitive rate. Contract agreement is not the time for vain platitudes such as fussy adjectives and grammar. While such may be very useful for marketing purposes, they have no place in formal documents. The papers should contain quantifiable facts, not words that can be interpreted differently depending on the person reading them. If you must use adjectives, like “heavy” (in heavy loads), then you must define them in a measurable manner. Quantifiable figures must define the minimum and maximum weight limits so as to differentiate heavy from light loads. The client should be clear and distinct on payment arrangement. Any non-enforceable vague statement on how and what payment will be made are clear red-flags that the hauler should be on the lookout for.

Invoice submission and payment timing: The time between invoice submission and eventual payment should also be clearly stated. Haulage business is capital intensive and the amount (running costs, load-specific costs and other overheads) that goes into keeping heavy duty trucks on the road is hugely expensive. Most companies recognize this fact and so set 15days to 1 month at most for invoice payment. Any payment arrangement that extends beyond 30-45 days should be naturally unattractive to haulage companies that have the intention of remaining in business in the medium to long term.

Freight Rate Adjustments: The conditions under which freight rates can be adjusted or reviewed to reflect changing realities must also be clearly stated. It becomes particularly relevant in a business environment like Nigeria where fuel prices could at random be subjected to a prolonged period of fluctuations or outright scarcity making recourse to ‘black market’ the next best alternative. Spare parts prices are also not static. What with the recent astronomical increase in import tariff on all categories of vehicles? It would therefore not make sense to have a medium to long term contract crafted on a fixed freight rate platform. A haulage firm should therefore be on the lookout for sure clauses like: