News / Tough market could swing the ocean contract pendulum to favour the shipper

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Invoicing issues and payment terms could be areas of contention in the upcoming contracting season, but under the tough market conditions, ocean carriers are likely to make some concessions.  

According to Matthew Gore, partner at law firm HFW, in previous contract negotiations carriers have tried to push for an extension to submit invoices, from 30 days to 60, or in “extreme cases”, 360 days. 

This issue, he explains, concerns the time it takes carriers to issue invoices after performing services like loading or discharging containers to the date the invoice is issued by the carrier or received by the shipper. 

“This has been strongly rejected by shippers,” he told The Loadstar 

Mr Gore explained: “Shippers may state in their contracts that if invoices are not received within this period, they are effectively time-barred and shall have no obligation to pay them.  Shippers want certainty of what they owe, and don’t want invoices cropping up from carriers ‘out of the blue’ months later. Hence, shippers want this period to be short.” 

He suggested that parties may agree different timeframes for invoices of different types, such as freight rates versus demurrage and detention, but warned that carriers had historically pushed for the ability to issue invoices “whenever it suited them” – without a deadline.  

Another invoice-related issue, Mr Gore cautioned, was the time carriers give shippers to make payment from the invoice date. 

“Shippers will obviously prefer longer payment terms, as it affords them more time to pay, whereas carriers will want to shorter payment terms to improve their cashflow,” he said. 

And while some contracts might stipulate that failure to pay ‘on time’ could afford carriers certain rights, such as to levy interest, suspend services or, in extreme cases, terminate contracts, Mr Gore suggested it would be easier for shippers to ask for longer payment terms during the 26/27 contract year, “if carriers are competing more fiercely for volumes”.