Member container lines in the Westbound Transpacific Stabilization Agreement (WTSA) have published a checklist of recommended issues to be considered in service contract negotiations. The intent is to increase efficiency and clarity in the contracting process, and to minimize the potential for disputes.

Lines acknowledged the valuable input received from the WTSA Shipper Advisory Board in preparing the checklist. The Board, formally established in September 2010, is the outgrowth of more than two years of informal shipper-carrier discussions in the market. The new contracting checklist is in part a response to difficulties experienced during the 2009-10 economic downturn in bookings, space and equipment availability, and other areas.

WTSA members focused their discussions with shippers in seven key areas of contracting as they formulated the principles: volume commitment; rate stability and predictability; surcharges; fuel surcharges; service; recourse; and miscellaneous issues such as contract duration and detention/demurrage concerns.

'The checklist is not intended to be a rigid, one-size-fits-all approach to contracting,' said WTSA executive administrator Brian M. Conrad. 'It is just a set of suggestions carriers and shippers might consider in their individual contracting. If we learned anything from our deliberations and our discussions with the shippers, it was that the U.S.-Asia shipper base is extremely diverse in terms of commodity characteristics and company objectives. We simply wanted to highlight some well-known friction points in typical carrier/shipper contract discussions where some added communication, supporting data or specificity could make the process simpler, quicker, and less adversarial.'

Among the specific factors recommended for consideration in the contracting process:

  • Encouraging the parties to consider a specified contract volume commitment, with better communication and more accurate forecasting about volume expectation by season, product or lane segment for purposes of reserving equipment.
  • Discussion of alternative pricing components in a contract, including the term during which rates are effective, possible reviews during the contract term, or a band in which rates could fluctuate over the entire contract term, subject to triggers.
  • More clearly defining the bunker fuel charge, with consideration of either specified amounts or clearly stated links to specific carrier tariff sections, as well as the formula under which a charge would float.
  • Possible notice provisions when new surcharges are introduced, discussion of the purpose of such surcharges and how they are calculated.
  • More specific service commitments, with performance measures and non-performance penalties or incentives built into the contract

'As global supply chains become more complex, time-sensitive and price-sensitive,' Conrad explained, 'shippers and carriers need contracts that take us beyond simple volume discounts and more fully spell out the obligations of both parties based on real-time sharing of information. We believe this checklist will be particularly helpful to small and medium-sized shippers that may have smaller contracting or logistics staffs.'

WTSA said it will post the full checklist of contracting principles shortly on a separate page within the 'Markets' section of its website, under the heading 'Shipper Relations', and will invite comment from the shipping public via the site.

WTSA is a voluntary discussion and research forum of 10 major ocean and intermodal container shipping lines serving the trade from ports and inland points in the U.S. to destinations throughout Asia. Information on all recent and scheduled guideline actions adopted by WTSA can be found on the Agreement's web site, www.wtsacarriers.org.

WTSA members include:
APL, Ltd.
Hyundai Merchant Marine Co., Ltd.
COSCO Container Lines, Ltd.
Kawasaki Kisen Kaisha, Ltd. (K Line)
Evergreen Line
Nippon Yusen