Carrier Contract
Also known as: Shipping Contract, Transportation Agreement, Carrier Agreement
Definition
A carrier contract is a legal agreement between a business and a shipping carrier that formalizes the relationship, establishes discounted rates, and defines the terms under which shipping services will be provided. These contracts are essential for businesses seeking better rates than published tariffs.
Why You Need a Carrier Contract
Benefits
- Discounted rates - 20-70% below retail
- Rate predictability - Locked pricing periods
- Surcharge caps - Limits on accessorial fees
- Service guarantees - Performance commitments
- Dedicated support - Account representative
Who Should Have One
- Businesses shipping 50+ packages/week
- Annual shipping spend over $20,000
- Companies needing rate certainty
- Anyone seeking better than retail rates
Contract Components
Pricing Terms
| Element | Description |
|---|---|
| Base rate discount | % off published rates |
| DIM factor | May be higher than standard (139) |
| Minimum charge | Lowest charge per package |
| Fuel surcharge | May cap or discount |
| Accessorial rates | Surcharge pricing |
Service Terms
- Guaranteed pickup times
- Delivery commitments
- Claims handling procedures
- Service failure remedies
Business Terms
- Contract duration (typically 1-3 years)
- Minimum volume requirements
- Payment terms
- Termination clauses
- Audit rights
Negotiating a Carrier Contract
Before Negotiating
Gather your data:
- Current shipping volume
- Average package weight/size
- Zone distribution
- Service level mix
- Current spend by carrier
Know your leverage:
- Competitor rates
- Volume growth potential
- Seasonal patterns
- Alternative carriers
During Negotiation
Key areas to negotiate:
| Area | What to Ask For |
|---|---|
| Base discount | Highest % off ground and express |
| DIM factor | 166 or higher |
| Fuel surcharge | Cap at X% |
| Residential surcharge | Reduced or waived |
| DAS | Capped or discounted |
| Minimum charge | Waived |
| Additional handling | Reduced |
What Carriers Want
- Volume commitment
- Growth projections
- Service level mix (express is profitable)
- Long-term relationship
- Predictable shipping patterns
Sample Contract Terms
Discount Structure Example
Ground Services: 45% off published rates
Express (Next Day): 35% off published rates
Express (2-Day): 40% off published rates
DIM Factor: 166 (vs. standard 139)
Fuel Surcharge: Capped at 15%
Surcharges:
Residential: $4.25 (vs. $5.50 retail)
DAS: Waived
Additional Handling: $12.00 (vs. $18.00)
Minimum Charge: Waived
Volume Commitment Example
Minimum Annual Volume: $150,000 in shipping
Measurement Period: Calendar year
Shortfall Provision: Rates increase to Tier 2 if
volume below 80% of commitment
Contract Duration and Renewal
Typical Terms
- Initial term: 2-3 years
- Auto-renewal: 1 year periods
- Notice to terminate: 60-90 days
- Rate review: Annual
Renewal Strategy
- Review current rates vs. market
- Gather competitor quotes
- Analyze actual volume vs. commitment
- Identify new negotiation points
- Engage early (90+ days before expiration)
Common Contract Pitfalls
Watch Out For
| Issue | Risk |
|---|---|
| Unrealistic volume commitments | Rate clawback |
| Auto-renewal without notice | Locked into bad terms |
| Vague service guarantees | Can’t enforce |
| Missing surcharge caps | Costs rise unexpectedly |
| No audit rights | Can’t verify billing |
| Long termination notice | Can’t switch easily |
Protective Clauses to Include
- Market rate review option
- Right to audit invoices
- Service level minimums
- Early termination for cause
- Rate increase caps
Multi-Carrier Strategy
Why Use Multiple Carriers
- Rate competition
- Service redundancy
- Best carrier for each lane
- Negotiation leverage
Managing Multiple Contracts
- Shipping software for rate shopping
- Regular benchmark comparisons
- Consolidated reporting
- Balanced volume distribution
Contract Management
Ongoing Activities
- Track volume against commitment
- Audit invoices for correct rates
- Monitor carrier performance
- Document service failures
- Prepare for renewal negotiations
Tools
- Transportation Management System (TMS)
- Contract management software
- Freight audit services
- Rate benchmarking tools
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