How you should negotiate carrier revenue commitments.

Originally published on April 16, 2014
Greg Taylor

Revenue commitments rarely end up benefiting the buyer—that’s not the intent. However, buyers too often accept revenue commitments in their contracts because the presented rates seem good, and the buyer plans to only give a portion of its traffic to the carrier.

You know what happens next. For any number of reasons, buyer fails to hit the minimums and now the contract is up for renewal. Carrier graciously offers to waive the shortfall if buyer agrees to renew the contract, with another revenue commitment—carrier has buyer over a barrel.

Some carriers require revenue commitments to do business with them. If you find yourself working with one of these carriers, you need to add three provisions to the agreement to protect yourself.

First, include a competitive rate provision. The provision should allow for rate recessions from the carrier in the event the original rates become unmarketable because they are higher than industry rates.

Second, include a quality of service provision. This language should establish minimum standards for the quality of the carrier’s service and provide for service credits when the carrier fails to meet these standards.

Third, include language in the termination section that allows you to either, eliminate the revenue commitment in the event of the carrier’s breach of the above provisions, or terminate the agreement in its entirety and without penalty.

As a general rule, I always advise clients to avoid revenue commitments. But, in those circumstances where a commitment is necessary, you can better protect your interests by incorporating the concepts discussed above into your contracts.