Tuesday, January 17, 2012

Who should select the carrier?

The answer to that will depend upon which delivery term you agree upon and where the risk of loss passes from the supplier to the buyer. If the supplier is paying for the shipment and it’s the suppliers risk for any loss or damage that occurs while the goods are in transit, the supplier will want control the selection. If the buyer is purchasing the item ex-works the supplier’s dock or stocking hub, the buyer will want to select the carrier to manage the cost of delivery and the potential risk. The simple fact is not all carriers are equal, there are good ones and bad ones. A second factor is not all shipping lanes that the carrier uses are of equal risk. For ocean shipments there are a number of areas around the world where there is still piracy.

If it’s at your cost and at your risk, most of the time the supplier’s main concern is making sure that you specify the carrier in advance so they can be scheduled to pick the item up when its ready. If they’ve had problems with you or with other customers providing timely notice of choice of carrier, suppliers will want the right to specify the carrier so its not clogging up their shipping dock. While that may be a reasonable request, I wouldn’t allow that to be open ended. Remember its at your cost and your risk so if you allow them to select the carrier if you failed to specify it, you should include parameters or standards to guide them. For example, you could ask them for a list of their preferred carriers and if
they are acceptable, limit their selection to only those carriers. You could also require that all shipments be by surface mode unless otherwise specified. You never want things to be open ended when you are paying the bill. For example, I was in a negotiation with a supplier. We were negotiating remedies for late delivery. One of those remedies was the supplier had to pay for the premium costs to ship the late delivery by air. The supplier wanted to make sure the clause specified that it be reasonable costs and that it be for normally scheduled airfreight. There is normally a story behind such requests so I asked them why. They explained that they had a customer who chartered a plane to ship the late materials and wanted to charge them for that.

Large companies normally have contracted carriers for specific shipping lanes that they use most and want their suppliers to use those contracted carriers. They will normally provide the supplier with the list of contracted carriers and the shipping lanes for the supplier to follow. In those situations the issues of selecting the carrier can arise when the shipment’s destination isn’t to one of those contracted lanes. Even if you have contracted carriers that you specify the supplier to use for shipments, you may still want the right to specify the carrier when shipments are to locations not covered by the contracted lanes.