Can you afford to watch another contract get ripped up when the market shifts?
Because when that happens, it’s not just rates that collapse — it’s budgets, forecasts, and at times, your team’s credibility.
The strongest procurement teams are already adapting. Finding ways to balance cost, risk, and relationships before the next market shock hits.
And they know that the most resilient freight contracts aren’t built in isolation. They’re shaped by three teams working in sync: Procurement, Finance, and Legal.
Procurement runs the tender, negotiates commercial terms, and is responsible for supplier selection and management. Finance ensures commitments fit within budgets and deliver predictability without surprises. And Legal makes sure contracts are clear, unambiguous, compliant with applicable law, robust, and legally enforceable.
Market turbulence, unsurprisingly, makes all of this more difficult. So, what exactly does it mean for Procurement, Finance and Legal teams seeking certainty for the year ahead? Can shippers or carriers really just walk away from contracts that no longer suit the market conditions? And how do contracts need to evolve to reflect today’s shipping landscape?
Matthew Gore, one of the UK’s leading commercial lawyers specialising in logistics, transport, and supply chain agreements, and Partner at HFW, spoke to Eloisa Tovee, Senior Campaigns Manager at Xeneta, during a recent episode of The Freight Debate. Together, they discussed the legal side of freight contract management in today’s market.
You can listen to the full episode on YouTube, Spotify, or Apple Podcasts, or read on for the highlights.
Don’t forget to follow The Freight Debate, to stay up to date with our fast-moving industry.
The most common enemy of contracts today: Surcharges
Every contract is different, so it’s rare that the challenges faced by one contract will be common across the industry. However, one challenge that does feel pretty universal in the current climate is surcharges.
In a volatile market, shocks in the system – whether they’re caused by international conflicts, geopolitical shifts, or natural disasters – have the potential to create huge costs for carriers. In order to be remunerated for their services and generate a reasonable profit, carriers need to pass on some of that cost increase, and often they do that 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.”
Matthew Gore, Partner at HFW
Carriers want the ability and the freedom to introduce surcharges as and when they see fit, with little or no notice. But that uncertainty doesn’t work for shippers who have to lock in budgets months in advance, meet tight profit margins and may be reliant on just-in-time manufacturing – meaning less flex in the supply chain to source a plan B if plan A becomes too expensive overnight. Carriers have also become more adept at capacity management to traverse volatility in the industry, whether that’s blanking sailings, rolling cargo, or changing port rotations. And these changes massively impact a shipper’s ability to get their cargo where it’s needed, when it’s needed.
When shippers enter a contract, they understandably want to know exactly what they’re going to pay, and what they’re going to get in return. But more and more frequently, that’s simply not happening.
It’s Legal’s job to make contracts enforceable
In freight, as in all other areas of law, certainty begins with clarity. A well-drafted contract doesn’t just define terms – it sets expectations, protects performance, and prevents disputes before they start. It also ensures those terms are legally enforceable if disagreements do arise.
It’s part of Legal’s role to make that happen.
Lawyers of course have to act in the best interests of the party they represent. However, one of the biggest roles Legal takes on is to build strong and fruitful relationships between parties. They make sure complex issues are broken down into clear language so everyone involved can enter agreements with open eyes and full understanding. Ultimately, they ensure everyone knows what they've signed up to and committed to. Which is why it’s important that Procurement teams spend time strengthening their relationships with Legal, and ‘frontloading’ conversations around upcoming ocean freight contracts so properly negotiated and legally enforceable contracts can be agreed well in time for the go-live date.
Why contracts break down – and how to stop it happening
Contracts break down when the market shifts and the contract no longer suits a party's interests. If the contract hasn't built in the flexibility to deal with this, the shipper or carrier might walk away, or only comply with those obligations that suit them. If the contract was never actually legally enforceable, they can do this with little to no consequence.
So why do shippers and carriers sometimes end up signing unenforceable contracts?
One culprit can be a reluctance to involve Legal out of cost concerns. But this can be a false economy: unenforceable contracts can lead to disrupted supply chains, lost sales and higher than expected freight rates. Another danger is parties assuming that their actual conduct will override the written terms of the contract. Relying on this thorny area of contract law leaves a party exposed and without a clear remedy.
By contrast, if a party walks away from or doesn't adhere to a contract that was legally binding, they’re in breach of contract. This could lead to predetermined consequences that were spelled out in the contract — for example, if the shipper failed to meet a minimum volume commitment, they may have to pay a set amount per container they didn’t use. Or if no predetermined consequences were agreed, it could lead to legal action. And even just the threat of legal action can be a useful tool to get parties to stick to their contractual obligations.
“We've seen instances in the past where, effectively, shippers have tried to hold carriers to their terms. Carriers have initially resisted, but upon a little bit of additional pressure, provided that the contractual terms are there to rely on, 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.”
Matthew Gore, Partner at HFW
Look at different contract types to deliver predictability and flexibility
Some of the biggest tensions occur when there’s a fixed-rate contract in place and the spot market diverges significantly from it. If the market goes up, carriers will be tempted to move away from their contracts, roll cargo, and move to the spot market. If the market goes down, shippers will be more tempted by the spot market.
One way to overcome this challenge is by using index-linked contracts. An index-linked contract does exactly what it says on the tin, it links your rates to an agreed market index — helping shippers and carriers stay aligned with real-time market conditions and enjoy appropriate rates without having to break their agreements to go to the spot market.
To work well from a legal perspective, index-linked contracts need clear commercial guidance on areas including:
- Initial agreed-upon rates
- Which index the contract will track
- Whether it covers multiple trade lanes — and if there are multiple indices, or sub-indices, for each trade lane
- Alignment between the index that you're choosing and the volumes that you're moving
- How frequently you’ll adjust your rates — for example, monthly or quarterly
- What will trigger rate adjustments such as a minimum market movement
- Any 'caps and collars' you want to put in place for the maximum amount a rate can move by
These commercial details give both parties an extra layer of certainty around what’s ultimately a flexible contract type. Whilst it takes a fair amount of thought and negotiation to get right, once terms are in place adhering to an index-linked contract becomes simple.
“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.”
Eloisa Tovee, Senior Campaigns Manager at Xeneta
For a deeper dive into how contracts are changing — and how indexing could deliver the future you’re looking for — download the Tender Rules eBook, and discover:
- Why traditional tendering is failing – and what to do about it
- How to structure contracts for greater agility and cost savings
- The role of index-linked contracts in a volatile market
- How to use data-driven insights to strengthen negotiations
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This blog was co-written between Xeneta and HFW.
HFW is a leading global law firm in the shipping, aerospace, commodities, insurance, energy and construction sectors. With Partners specializing in logistics, and supply chain practice, its deep sector expertise in drafting, negotiating, and enforcing freight contracts, helps clients to reduce commercial risk, ensure compliance, and strengthen their legal position in a volatile global market.
If you’d like to understand more about HFW’s work in logistics and supply chain law, you can visit their website here.
