A question of timing
There are various methods of measuring productivity and determining whether the underperformance of the terminal operator is material and should entitle the shipping line to terminate the agreement.
The measures of productivity may be averaged over a certain period of time with the shipping line having the right to issue a warning notice to the terminal requesting that the terminal improve its productivity to a certain level within a defined period of time.
The parties should also agree a notice period in case the shipping line wishes to terminate the agreement because the terminal has not achieved the required service levels within the cure period.
Some agreements may include a right for the terminal operator to carry across shortfalls in productivity or for the shipping line to carry across shortfalls in guaranteed volumes to the following year with the opportunity to make good such deficiencies.
Of course, a shipping line's right to terminate should be conditional on the shipping line not being in breach of the agreement in any material way, including the shipping line meeting any agreed minimum throughput, the scheduling and size or capacity of the vessels deployed at the terminal, and many other operational factors relating to normal operations of the terminal.
It will be crucial for the parties to the terminal services agreements to carefully consider and agree the methodology for measuring the performance of the terminal operator.
Each of the KPIs and the provisions relating to damages and termination will need to be fine-tuned to the specific terminal to which they relate because terminals do not necessarily use the same KPIs to measure their performance. KPIs cannot, therefore, necessarily be applied in a uniform manner across all terminals in which a shipping line operates and the relevant provisions of each terminal services agreement need to be custom made for terminal operations and relationships with terminal operators to be successful in the long run.
