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Views: 15 Author: Site Editor Publish Time: 2022-10-14 Origin: Site
A service contract between BCO and VOCC in which the parties agree to transport a specified quantity of goods at a specified service level for a fixed period of time at a specified and mutually agreed freight rate.
A BCO commits to transport a specified and mutually agreed upon quantity, known as a Minimum Quantity Commitment (MQC).
Minimum quantity commitments usually form the basis for determining freight rates and provide the carrier with the necessary information to reserve cargo space for the duration of the contract.
Due to the unpredictability of business, more often, BCOs may not be able to predict the amount they can commit. However, based on mutual discussions between the carrier and the BCO, a tolerance can be set.
A service contract is a legally enforceable agreement between the parties involved with mutual obligations and specific terms. MQC is critical to this contract and both parties must abide by the deal.
A service contract may have many conditions attached to this MQC. Service contracts may require this MQC to be distributed equally over the entire contract period. The BCO may not insist on having as much space on a certain ship as they want under this MQC and contract.
Rates and MQC are specific to one contract and BCO cannot utilize this MQC or contract to claim any concessions on any other contractual arrangement with the same VOCC.
From the BCO side, they have to provide the VOCC with the agreed amount of MQC. From the VOCC side, they must provide the space and services required for the agreed MQC.
If the BCO fails to provide the promised minimum quantity, the space reserved by the carrier for the BCO may not be available. Under the service contract, the carrier may be eligible to claim compensation for these unused slots.
On the other hand, if the VOCC cannot provide the BCO with the space it needs to transport the cargo, the BCO may incur additional costs and expenses due to increased freight with other carriers. Under the contract, BCO may be eligible to claim against the carrier in this regard.
However, MQC-based service contracts are not necessarily the best solution for all parties. In a few cases, BCOs may be the main beneficiaries of such agreements.
When the spot price in the market increases, BCO can ship at a lower contract price according to the agreement with the carrier, which also guarantees space for the BCO on board.
On the other hand, when spot rates drop, shippers may use lower spot rates because, to be honest, carriers may not seek legal recourse for relying on these big customers.
According to industry sources, carriers have never charged BCO for failing to meet minimum volume commitments because the business is competitive.
It remains to be seen whether these penalties can be enforced in some way in the future.