With supply chains ramping up for the 2019 holiday season, the issue of supply chain peak season contracts returns to the table. Contracts ensure enough capacity, workers, and products to meet demand during the busiest time of the year. Unfortunately, the best time to secure such agreements exists well outside the typical peak season period. For instance, some carriers may already have full schedules, and issuance of new contracts may already be closed to new shippers. However, carriers may still have availability, and with the demand only going to increase between now and the end of the year, it creates an opportunity for losses. Supply chain leaders need to know a few things about when to sign and how to identify high-cost contracts.

Challenges in Securing Appropriate Supply Chain Peak Season Contracts

The biggest challenge in securing appropriate supply chain peak season contracts hinges on availability. As explained by Material Handling and Logistics, the most prominent players in the industry begin planning for the upcoming peak season as earlier as February. This creates fewer opportunities to secure new contracts, and for those that haven’t touched the issue by Labor Day, risk of delays and failure to meet demand increases.

The problem is not confined to U.S. logistics either. Ocean vessel shipping succumbs to pressures in the market, including Chinese Golden Week, reports Talking Logistics. For companies in the continental U.S., these delays amount to massive losses. Meanwhile, nefarious companies may also arise, promising significant benefits with little proof of success.

Focus on the Big Picture When Signing Contracts

Supply chain leaders can overcome the fears of signing long-term contracts during the holiday season by reviewing the lessons of the past. The holidays tend to coincide with the roll-out of general rate increases (GRI), especially among spot and parcel shipments. Meanwhile, the unique servicer stipulations may contain strict rules for managing docks, handling late deliveries, and more. Instead of trying to think solely about available capacity and needs for the immediate season, leaders should look for the long-term value gain. In other words, what does the contracted company really provide beyond supply chain peak season contracts?

Best Practices for Reviewing Contracts Before Signing

Before signing any contract, supply chain leaders must thoroughly consider its terms and follow these best practices:

1. Know what to expect from GRIs in the coming months. If the contract does not lower your spot rates, it is likely going to cause more harm than good.
2. Remember the threat of mergers and acquisitions. Carriers are always evolving, and the terms of contracts today could become meaningless if the company changes the structure or files for bankruptcy.
3. Look for independent carriers and servicers. While the more prominent companies have a more considerable risk for restructuring regardless of the season, smaller, independent servicers may have additional resources at their disposal. Moreover, they are not bound by the rules imposed by alliances in the market.
4. Rely on Incoterms in contract language. Incoterms refer to the specific, clearly defined terms used in international contracts to ensure all parties understand their responsibilities and liabilities.
5. Review available technologies and digital services included in the contract. Technology is a friend, not a foe, and depending on the servicer, integration may be necessary or even required for use. As a result, always consider the impact of new systems and platforms on your current IT network.

Work With a Third Party to Ensure Appropriate Contractual Terms

Signing supply chain peak season contracts may be necessary to give your organization access to the resources needed. However, the current season is expected to be less stressful than in 2018. Instead of trying to secure a contract today, focus on the big picture. Look beyond the contract and its impact on peak season. Careful consideration will help determine whether signing will truly add any benefit to your organization and the ability to meet customer expectations. Learn more about contract negotiations and how to put new systems to use for peak season by requesting a consultation with Veridian online today.