FREIGHT FORWARDER AGENCY AGREEMENTS
It is commonplace for freight forwarders to work with overseas agents. Often the relationships are reciprocal with each forwarder consigning work to, and receiving shipments from, the other forwarder. These relationships can involve large amounts of business and like any significant business relationship, it is good practice to document the agreement.
Between freight forwarders and their customers, template agreements can often be used. However, agreements between freight forwarders are often bespoke - it is important that an agency agreement reflects how the two freight forwarders intend to work together.
Topics that need to be covered include:
Exclusivity – Must each forwarder only use the other for the relevant trade lanes? If this is the case, will there be exceptions to this, such as shipper or consignee insistence on using a particular forwarder or types of freight, such as low value airfreight.
Shipping terms and conditions - The shipper will normally sign up to the origin forwarder’s terms and conditions. It is important that a copy of these are terms are made available to each party and that the terms adequately protect the destination forwarder.
Non-solicitation – Each party will be putting the other party in direct contact with their customers. There needs to be clear legal commitments regarding solicitation of work from those clients. It will largely come down to trust, but a legal agreement is a clear way of setting each parties’ expectations.
Liability for acts of the shipper/consignee – We often receive calls from an origin freight forwarder who has been named as consignee on the ocean bill and consignee on the house bill of lading has abandoned the shipment. Who will be liable for the costs such as container detention, storage and costs of destruction?
Lien – When it comes to enforcing debts, a lien is a powerful tool. What happens when the origin freight forwarder owes money to the destination forwarder? Can the destination forwarder exercise a lien over the next consignment that arrives, even if the owner of those goods has paid up their accounts? The last thing a forwarder wants is their innocent client’s good to be mixed up in a debt dispute.
Profit sharing – How do the parties intend to share the benefits of leads created by the relationship? Agreements don’t have to cover sales activity. It may be that each party hope to mutually benefit from the relationship in the long run. However, on other occasions the parties may agree that the forwarder that generates the business receives a portion of the profits. If this is the case, the parties will need arrangements for the reporting of profits, payment of any fees and sharing of business development costs.
Terms in every agreement – On top of freight forwarder specific terms, there are standard terms that are important in all international commercial agreements. The agreement should cover issues such as:
How disputes will be settled – in some cases the only binding option will be arbitration
Which country’s laws will apply
The term of the agreement – this will be particularly important if there are exclusivity commitments
The precise identity of the parties to the agreement – the global brand name is not enough
How and when payment will be made – in these type of agreements an offset arrangement is common. However, there should be some reconciliation process and credit limits
A predictable relationship with your overseas agent can be crucial to your business success. A way of increasing this certainty is to have in place an agreement that attempts to deal with the vast variety of circumstances that can arise in international trade. The reality is, if you think there is enough risk to justify formal agreements with your customers, there is even more reason to justify this approach with your overseas agents.