The Rules of our personal and business lives exist to protect us. Rules of the Road keep us safe while driving. Robert’s Rules of Order protect the democratic process of many organizations and governments. And the Rules in carriers’ tariffs protect …. the carriers’ wallet. That’s right, they don’t really protect you or your company very much as the shipper. In fact, most of the rules in carrier tariffs exist to raise or retain carrier revenue. But there is a way to protect yourself from, or at least mitigate, revenue-increasing changes in those rules.
At two past employers, I saved each over a million dollars during the course of a contract by not allowing different major air carriers to implement rules changes during the contract term. How? I had negotiated the following clause into all of my transportation contracts:
“Except as otherwise provided in Schedules attached to this Contract, all shipments accepted by Carrier for transportation under this contract will be governed by the applicable rules, regulations, and charges published in Carrier’s reference tariffs listed in Schedule A attached hereto as of the effective date of this Contract. In addition, Shipper will not be subject to any new or revised rules (or interpretation of rules) which would have the effect of increasing the net cost of shipments moved under this Contract and/or reducing service to Shipper unless such new rules and/or interpretations are mutually agreed in a signed amendment to this Contract.”
While this column cannot give you legal advice, your corporate legal department can certainly craft a version of this clause that protects your company and is agreeable your carrier. Granted, not every shipper will have enough negotiating leverage to make this language part of their standard carrier contracts. However, those who can will have: (1) better control of their costs, and (2) protection against expensive rule change surprises.
When your carriers initially reject this (as they always will the first time around), stress to them that they are not prohibited from suggesting new or revised rules. This clause just means that they must negotiate all such changes with you. In my two examples, one carrier rewrote a rule and another had published a brand new (non-fuel) surcharge. Neither issue had been part of the negotiations that established those respective multi-year contracts. Both were merely attempts to raise revenues from all customers. And in both cases the changes were not accepted by my companies because nothing had changed in either carrier or shipper operations. Had we increased our carriers’ costs we would have allowed additional compensation. But in both cases there was no cost basis for these mid-contract revenue increases.
To protect your company, you need to find your carrier’s’ applicable rules tariffs in hard copy or electronic form, read them thoroughly so that you understand what each and every rule means as a cost element to your company, and then, when establishing a contract, freeze those rules you want to keep, negotiate what you need changed or deleted, and be prepared to re-negotiate rules along with rates at every contract renewal or re-bid. Armed with this approach, perhaps the next million dollars saved could be yours.
George Yarusavage, CTL, C.P.M., is a principal in Fortress Consulting, specializing in Transportation and Sourcing issues. He is also the Treasurer of ISM’s Logistics & Transportation Group and can be reached at gyarusavage@yahoo.com, or (203) 984-4957. Membership in the Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields. This article is part of the monthly series authored by the Group’s Board Members, who are current practitioners, consultants, and educators. In future columns they will continue sharing their views on a number of Supply Chain topics.
At two past employers, I saved each over a million dollars during the course of a contract by not allowing different major air carriers to implement rules changes during the contract term. How? I had negotiated the following clause into all of my transportation contracts:
“Except as otherwise provided in Schedules attached to this Contract, all shipments accepted by Carrier for transportation under this contract will be governed by the applicable rules, regulations, and charges published in Carrier’s reference tariffs listed in Schedule A attached hereto as of the effective date of this Contract. In addition, Shipper will not be subject to any new or revised rules (or interpretation of rules) which would have the effect of increasing the net cost of shipments moved under this Contract and/or reducing service to Shipper unless such new rules and/or interpretations are mutually agreed in a signed amendment to this Contract.”
While this column cannot give you legal advice, your corporate legal department can certainly craft a version of this clause that protects your company and is agreeable your carrier. Granted, not every shipper will have enough negotiating leverage to make this language part of their standard carrier contracts. However, those who can will have: (1) better control of their costs, and (2) protection against expensive rule change surprises.
When your carriers initially reject this (as they always will the first time around), stress to them that they are not prohibited from suggesting new or revised rules. This clause just means that they must negotiate all such changes with you. In my two examples, one carrier rewrote a rule and another had published a brand new (non-fuel) surcharge. Neither issue had been part of the negotiations that established those respective multi-year contracts. Both were merely attempts to raise revenues from all customers. And in both cases the changes were not accepted by my companies because nothing had changed in either carrier or shipper operations. Had we increased our carriers’ costs we would have allowed additional compensation. But in both cases there was no cost basis for these mid-contract revenue increases.
To protect your company, you need to find your carrier’s’ applicable rules tariffs in hard copy or electronic form, read them thoroughly so that you understand what each and every rule means as a cost element to your company, and then, when establishing a contract, freeze those rules you want to keep, negotiate what you need changed or deleted, and be prepared to re-negotiate rules along with rates at every contract renewal or re-bid. Armed with this approach, perhaps the next million dollars saved could be yours.
George Yarusavage, CTL, C.P.M., is a principal in Fortress Consulting, specializing in Transportation and Sourcing issues. He is also the Treasurer of ISM’s Logistics & Transportation Group and can be reached at gyarusavage@yahoo.com, or (203) 984-4957. Membership in the Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields. This article is part of the monthly series authored by the Group’s Board Members, who are current practitioners, consultants, and educators. In future columns they will continue sharing their views on a number of Supply Chain topics.
