- New Measures Aim to Tighten Gaps in Oil Price Cap Enforcement.
- 19 Tankers Flagged in Non-EU States Included in Blacklist.
- Greek Shipping Firms Face Heightened Scrutiny After Sanctions Update.
The most effective procurement teams are navigating unpredictable markets by bringing together Procurement, Finance, and Legal departments. Procurement takes charge of managing tenders and building strong supplier relationships. Finance plays a crucial role in maintaining financial stability. Meanwhile, Legal ensures everything is clear, compliant, and enforceable. This teamwork is essential for companies to brace for disruptions and maintain long-term contractual stability, reports Xeneta.
The Common Challenge: Surcharges
In the current unpredictable market, surcharges have emerged as a significant headache. Carriers are grappling with increased costs due to geopolitical changes or natural disasters, and they often pass these costs onto customers through surcharges.
“[We used to be in] a position where carriers would perhaps sign up to a fixed rate contract, with all-inclusive rates and no additional surcharges for the period of the contract. I think those days are long gone,” said Matthew Gore, Partner at HFW. While carriers seek flexibility to introduce surcharges, shippers struggle with uncertainty and tight budgets, leaving little room for sudden cost spikes or shipment delays.
Legal’s Role: Ensuring Enforceability
It all starts with clarity. Legal teams play a crucial role in making sure contracts clearly outline obligations and can be enforced if any disputes come up. They also foster a mutual understanding between all parties involved, ensuring everyone knows their responsibilities before they put pen to paper. When Procurement and Legal collaborate early in the process, they can create well-negotiated, enforceable contracts that are ready well before the go-live dates.
Why Contracts Fail
Contracts can fall apart when market changes make them less appealing and they lack the necessary flexibility. Some shippers might shy away from involving Legal due to perceived costs, but this can result in agreements that aren’t enforceable and lead to supply chain hiccups. If one party decides to back out of a binding contract, they could face penalties or even legal action. Sometimes, just the threat of legal enforcement is enough to keep everyone in line.
“We’ve seen instances… where shippers have tried to hold carriers to their terms… This contractual pressure has been successful. And effectively, the carriers, in some cases, have had to backtrack and accept what the terms of the contract are saying.” said Matthew Gore, Partner at HFW.
Finding Flexibility with Index-Linked Contracts
Market fluctuations create tension between fixed-rate and spot-rate contracts. One solution is the index-linked contract, which adjusts rates based on a chosen market index.
This model offers flexibility and predictability, but requires clear terms around the index used, adjustment frequency, and rate movement limits. “We’re never expecting people to put their entire volumes on an index-linked contract. But we are seeing many more people explore it as a way of dealing with volatility and building in that flexibility that both sides want.” said Eloisa Tovee, Senior Campaigns Manager at Xeneta.
Did you subscribe to our daily Newsletter?
It’s Free Click here to Subscribe!
Source: Xeneta
