A Brief Introduction About Shipping Contracts
Shipping contracts are required if you are in the importing and exporting business. Irrespective of what material you import or export, you will need to enter into a contract with a shipping company for a prompt shipment. When it comes to marine shipping, you need to determine which port will be the most convenient for you.
The shipper has to be informed about the relevant details regarding your shipment. The voyage charter will require the nature and quantity of goods being shipped and the ports involved in the voyage. Apart from the details regarding the shipment, the contract will include information regarding the tonnage of the cargo. The acceptable range for errors is 5%. Any misrepresentations in the shipment contract definition clauses can be grounds for termination and a lawsuit.
When it comes to laytime or the time taken for loading and unloading cargo, the owner shall provide an incentive to the shipper by offering a higher fee if the laytime is lowered. Once these contracts are finalized, then both parties have to fulfill their contractual obligations.
A shipping contract sample can be referred to for determining the clauses that should be included. The cargo will have to be insured by the cargo owner. Losses that are beyond the control of the shipper are not covered.
Who Takes Shipping Contracts?
If you want to ship products that you manufacture to another country, you will have to enter into an agreement with the shipper. Therefore, there are two parties to the contract, the shipper and the client. Typically, a person who offers shipping services, and the person who wants their goods shipped enter into what is a shipment contract.
Purpose of Shipping Contracts
The shipping agreement contract states the relationship between the shipper and the client. While the client needs the services of a shipper for transporting goods from one destination to the other, it is the duty of the shipper to ensure that the goods reach the destination without any hindrances at the various ports. Shipping contracts also require specialized knowledge of the exim laws of the host and the intended country. A shipping company offers those services so that the person who needs goods shipped only has to pay for the services and relevant taxes. The client should ensure that the shipper is paid on time.
Contents of Shipping Contracts
Transport contracts should include the following information:
- Name of the parties to the contract, the client and the shipper
- Consideration: The fee for the contract, the due dates for payment, penalties in case of delay or default
- Certifications: There should be provisions regarding delays in shipment and accuracy in delivery time should be avoided
- When is a delivery considered completed in a shipment contract’ subject to the transfer of property and sale of goods acts
- Waiver: Losses suffered to the client which are not directly related to the shipment
- Safety clause: Job safety should be the individual’s responsibility
- Contract duration: The start and end date of the contract should be mentioned in the agreement
- Assignments and lien on the goods
- Responsibility of liability of loss in transit.
- Responsibility of collection and delivery and the responsibility to dispose off of goods in case delivery is not according to the agreed contract.
- Payments and insurance on the goods in transit and the liability of each part as part of the insurance.
- Provisions for termination of the contract and what constitutes breach of contract along with the provisions for force majeure.
How to Draft Shipping Contracts?
While preparing these contracts, you must be familiar with terms like wow shipping contract, which means waiting on weather or WOW. This is applicable for weather-sensitive ports. A shipping contract template can be used to avoid the omission of important clauses. The points that need to be considered are:
- Eligibility to participate: Both parties should be over the age of 18, of sound mind and not under coercion
- Fee payable: The fee payable by the client, the mode of payment and payment schedule
- Contract terms: The terms of the contract should be fair to both the client and the shipper
- Confidentiality clause: No party should share any proprietary information with a third party and cause losses
- Dispute resolution clause: Disputes should be resolved through mediation and in extreme cases legal action
- Contract termination: The contract may be prematurely terminated by notice from either party
Negotiation Strategy
The client can negotiate the laytime with the shipper in shipping contracts. The shipper can be offered a higher fee if the loading and unloading of goods can be done within a specified time limit. Of course, care has to be taken that the goods are not damaged.
Benefits & Drawbacks of Shipping Contracts
The benefits of a shipping contract are as under:
- Protection of interest: The shipper can expect full payment of fees if the cargo is shipped to the destination mentioned in the contract within the deadline without damaging the goods. The client knows that the utmost care will be taken while delivering the goods
- Client benefits: Since the goods will be delivered in proper condition and within the time specified, the client will be able to supply the goods on time and earn a profit
- Legal action: If any party violates a clause in the contract, the other party can claim damages
The drawbacks of shipping contract are as under:
- Losses for both parties: There will be losses due to non-payment or delayed supply of goods
[ Also Read: Transport Contract ]
What Happens in Case of Violation?
In case of violation of a shipping contract, both the shipper and the client can seek legal remedy. If one party fails to fulfill the contractual obligation, then the injured party can claim money damages, including lost profits for total breach.
If fraud is detected in the contract, it is canceled under rescission or a new contract drawn by the court under reformation.
If the contract is at an advanced stage, then money damages are not accepted, and the party violating the contract has to fulfill the contractual obligation under specific performance.
Both the client and the shipper have to go through all the clauses when entering into shipping contracts. The client must provide accurate information regarding the shipment, and the shipper should verify the same. Important clauses like dispute resolution clause(1) and contract termination clause should be mandatory.