Ocean Contract Types: NAC vs FAK vs Service Contracts

The annual ocean tender closed in April with a contract rate of $2,980 per forty-foot container to New York. In September the freight audit found four bookings billed at $3,400. The forwarder said the bookings had gone in without the named account reference, so the carrier priced them at its FAK level. The buyer had never seen the carrier's contract, only a rate sheet, and could not tell which document governed the price.

Ocean freight is bought under three different instruments, and each one decides who holds the rate, who must ship a minimum volume, and which record an auditor should check an invoice against. Once the buyer knows which instrument covers each lane, an invoice can be matched to the right rate in minutes, and a minimum quantity shortfall can be forecast months before it turns into liquidated damages.

• What this guide covers: FAK tariff rates, named account rates through an NVOCC, direct service contracts filed under 46 CFR Part 530, minimum quantity commitments and how to audit invoices against each.
• What it adds: a worked comparison for one India to US lane in US dollars and rupees, a shortfall and break-even formula, a mis-billed booking trace and a selection table for freight buyers.

Three ways to buy ocean freight and who signs each one

A FAK rate is one price for a range of commodities, published by a carrier or quoted by an NVOCC; a named account rate gives one shipper access to an NVOCC's carrier contract; a direct service contract binds the shipper and carrier to volume and price. Only the last puts the shipper's own name on a filed contract.

• FAK, or freight all kinds: a single rate per container for many commodity types, usually with exclusions such as hazardous, refrigerated or out-of-gauge cargo. It suits buyers with mixed, irregular cargo and no volume to commit.
• Named account contract: an NVOCC or forwarder holds a service contract with the carrier, and the carrier agrees rates that apply only to cargo of a named beneficial cargo owner. The buyer gets contract-level pricing without signing with the carrier.
• Direct service contract: the shipper signs with the ocean carrier, commits to a minimum quantity over a fixed period, and receives a rate and defined service in return.
• NVOCC negotiated rate arrangement: how an NVOCC usually passes its contract rate, or any other price, to its own customer under 46 CFR Part 532.

The labels matter for audit because each instrument sits in a different record. A FAK rate lives in a tariff or a quotation, a named account rate lives in the NVOCC's contract with the carrier plus the arrangement with the shipper, and a direct contract lives in the filed agreement and its amendments. If the invoice cites the wrong instrument, no amount of line checking will catch it.

What 46 CFR Part 530 requires a filed service contract to state

Every service contract between an ocean common carrier and a shipper in US foreign trade must be filed with the Federal Maritime Commission no later than 30 days after its effective date. The contract must state, among other terms, the minimum volume or portion, the line-haul rate and any liquidated damages for non-performance.

Section 530.3 defines a service contract as a written contract, other than a bill of lading or receipt, in which a shipper commits to a certain minimum quantity or portion of its cargo or freight revenue over a fixed period, and the carrier commits to a rate and a defined service level. Section 530.3 also defines a shipper to include an NVOCC that accepts responsibility for payment of all applicable charges.

• Geography: origin and destination port ranges for port-to-port moves, or geographic areas for through intermodal moves.
• Cargo: the commodity or commodities covered by the contract.
• Volume: the minimum volume or portion the shipper commits to.
• Price and service: the line-haul rate and the carrier's service commitments.
• Non-performance: liquidated damages, if the parties agreed any.
• Term and parties: effective and expiration dates, legal names and addresses, affiliates entitled to use the contract, signatories and a certification of shipper status.

Section 530.8(a) also says that filing after the 30-day window does not change whether the contract applies to cargo received on or after its effective date. Section 530.6 requires the shipper to certify its status on the signature page; where it certifies as an NVOCC, the carrier must first obtain proof that the NVOCC has a published tariff and financial responsibility. Carriers keep signed contracts, amendments and associated records for five years after the contract ends under Section 530.15.

Ocean service contracts in US foreign commerce are filed with the Federal Maritime Commission within 30 days of the effective date under 46 CFR 530.8(a), and Section 530.8(b) requires each filed contract to state the minimum volume or portion, the line-haul rate, port ranges, commodities, duration and any liquidated damages for non-performance.

FAK rates: one price for mixed cargo, and the exclusions that bite

A FAK rate saves the buyer from classifying each commodity, but only for cargo inside its scope. Hazardous, temperature-controlled, overweight or out-of-gauge cargo is commonly excluded, and an excluded booking is priced at a different, usually higher, rate.

Carrier tariffs under 46 CFR Part 520 publish rates, charges, classifications and rules. A commodity rate in that part is a rate for specifically named commodities between specific points, while a FAK rate covers a range of commodities at one price. The timing rules matter for buyers on tariff rates: under Section 520.8, a change that increases cost to the shipper takes effect no earlier than 30 calendar days after publication, while a decrease can apply on publication.

• Scope wording: read the commodity exclusions in the FAK rule, not just the rate line; a booking of lithium batteries under a general FAK may be rejected or repriced.
• Container type: FAK rates are usually quoted per dry container size; high-cube, reefer or special equipment often carries its own rate or an addition.
• Validity period: NVOCC FAK quotations often run for a month or a quarter, and the date that counts is the one stated in the quotation or arrangement.
• Surcharge basis: check whether the FAK rate is all-in or subject to listed surcharges; an NVOCC arrangement that is not all-in must say which additional charges apply.

Where an NVOCC quotes the FAK rate, the governing document is usually an NVOCC negotiated rate arrangement. Section 532.5 requires that arrangement to be in writing and agreed before the NVOCC receives the cargo, and allows later amendments to apply only to shipments not yet received. A rate emailed after the container was gated in is not the rate that governs that container.

Named account rates: contract pricing through an NVOCC's agreement

A named account rate lets a mid-size shipper use an NVOCC's carrier contract at a price the carrier agreed for that shipper's cargo alone. The shipper gains contract pricing without a minimum quantity of its own, but it is not a party to the carrier contract and depends on the NVOCC to book correctly.

The structure works because the NVOCC is a shipper under Part 530 and can hold its own service contract with the carrier. The carrier agrees, as a commercial term of that contract, a rate available only when the booking carries the named shipper's identity. The NVOCC then sells to the named shipper under its own arrangement, adding a margin or fee, and the named shipper's volume counts toward the NVOCC's minimum quantity, not its own.

Named account ocean pricing runs through two documents: the NVOCC's service contract filed under 46 CFR 530.8 and the NVOCC negotiated rate arrangement with the shipper under 46 CFR 532.5, which must be agreed before cargo receipt, so an audit should match each invoice to both within $0.00 per container.

• Booking identity: the named account reference must be on every booking; a missing code is the most common cause of a FAK price being billed instead.
• Margin visibility: the shipper sees the NVOCC's price, not the carrier rate underneath; ask for the margin or fee to be stated in the arrangement.
• Space protection: allocation in peak season follows the NVOCC's contract, so the named shipper competes with the NVOCC's other customers for that space.
• Continuity: if the NVOCC's contract is not renewed with that carrier, the named rate ends with it, regardless of the shipper's plans.

Minimum quantity commitments and the shortfall arithmetic

A minimum quantity commitment is a promise the shipper must manage weekly, not review at contract end. The shortfall cost is the gap between committed and shipped volume multiplied by the liquidated damages rate, and it can be forecast from the run rate long before the deadline.

Section 530.8(b) requires a filed contract to state the minimum volume or portion and any liquidated damages for non-performance. Contracts express the commitment in twenty-foot equivalent units, forty-foot containers or a share of the shipper's cargo, and they define which shipments count. Bookings under a different contract, rolled containers that sail after expiry or cargo moved under an NVOCC's named account usually do not count toward a direct contract.

Minimum quantity tracking for one service contract (FEU = 2 TEU)

  Shortfall  = max(0, MQC - Counted)
  LD_due     = Shortfall * LD_rate
  Projected  = Counted_to_date * (Contract_weeks / Weeks_elapsed)
  Alert when   Projected < 0.95 * MQC

  Break-even volume V* between direct contract and named account,
  for V below the MQC:
     Direct(V) = R_direct * V + LD_rate * (MQC - V)
     NAC(V)    = R_nac * V
     V*        = LD_rate * MQC / (R_nac - R_direct + LD_rate)

  MQC       committed containers in the contract term
  Counted   containers that meet the contract's counting rules
  LD_rate   liquidated damages per container of shortfall
  R_direct  line-haul rate in the direct contract
  R_nac     price per container under the named account arrangement

  Example: MQC = 150 FEU, LD_rate = $400, R_direct = $2,850, R_nac = $2,980
           V* = 400 * 150 / (2,980 - 2,850 + 400) = 60,000 / 530 = 113.2 FEU

In that example the direct contract is cheaper whenever the shipper actually moves more than about 113 containers, even after paying damages on the shortfall. Below that volume, the named account is cheaper because the shipper pays no damages. The formula is the practical answer to the question buyers ask most often: how much volume is enough to sign directly?

Minimum quantity commitments in FMC-filed service contracts carry liquidated damages only where 46 CFR 530.8(b) records them in the contract, so a buyer counting qualifying containers weekly and alerting below 95% of the commitment can act around 26 weeks before a shortfall invoice arrives.

The projection line is the control that prevents surprises. At week 26 of a 52-week contract with 60 FEU counted, the projection is 120 FEU, below the 142.5 FEU alert level. That is the moment to talk to the carrier about an amendment, to shift volume from other lanes, or to accrue the expected damages, not week 50.

A worked comparison for one India to US lane in dollars and rupees

For a lane from Nhava Sheva to New York with 128 containers shipped against a forecast of 160, the direct contract costs least even after $8,800 of shortfall damages, the named account costs about 2% more, and FAK costs about 16% more. The figures below are illustrative.

The contract holder depends on the sale term. A US importer buying FOB Nhava Sheva normally books and pays the ocean freight in dollars; an Indian exporter selling CIF or CFR books it and records the cost in rupees. Under Ind AS 21, a foreign currency transaction is first recorded at the spot exchange rate on the transaction date; the rupee column uses an illustrative ₹86.50 per dollar for every line.

The last two rows show the same comparison at 100 containers, below the 113 FEU break-even: the named account now saves $7,000. Shippers with volatile volume should therefore model a low case before signing a direct contract, and they can negotiate a lower minimum, a lower damages rate or a portion-of-cargo commitment rather than a fixed count.

Invoice audit uses the same numbers. In the opening example, four bookings were billed at the FAK level of $3,400 instead of the named account price of $2,980. The overcharge is $420 per container, or $1,680 for the four, which is ₹1,45,320 at the illustrative rate. The audit check is simple once the governing instrument is recorded on each booking.

Who keeps each ocean rate record and who approves a change

Each rate instrument needs one owner on the buyer's side, and every booking must carry a reference to the instrument that prices it. Without that reference, the freight audit cannot tell a correct FAK charge from a missed contract rate.

The rate itself also needs a validity rule. A rate change mid-contract, or a FAK quotation that expires during a voyage, raises the question of which date prices the shipment. Our guide to rate card effective dates covers how to settle that rule once, and the general invoice checks sit in the freight audit checklist.

Rate checks a freight audit can automate and those buyers must judge

Matching an invoice to the rate instrument named on the booking is a fixed rule that software should apply to every container. Deciding whether to amend a contract, accept a substitute rate or pay damages is a commercial judgement that needs a named buyer.

Most ocean overcharges come from the booking, not the invoice. When the booking lacks the contract number or named account code, the carrier applies the next rate it can find, and the invoice is internally consistent with that wrong rate. The trace below shows how one such booking moved through a buyer's process.

1. 3 June, 10:20: A booking coordinator places BKG-NSA-55190 for four FEU on the carrier's portal from a saved template that predates the named account, so the named account field is empty.
2. 18 June, 06:45: The containers load at Nhava Sheva; the carrier's invoice prices them at the $3,400 FAK level, and the NVOCC re-bills that amount.
3. 2 July, 15:10: Accounts payable approves the invoice because amount, containers and voyage match the booking confirmation; payment run PR-0702 releases $13,600.
4. 9 September, 11:30: A quarterly audit compares paid rates with the named account arrangement and finds the $1,680 difference; the NVOCC says its arrangement allowed 30 days to dispute charges.
5. Controlled version: The TMS refuses to submit a booking for that lane without a rate instrument reference, and the audit rule compares every invoice line with that instrument before payment.

Choosing between named account, FAK and a direct contract by volume

Choose the instrument by forecast volume, volume certainty and how much space protection you need. The break-even formula gives the volume answer; the checklist below covers the rest, and each point can be scored for every lane in the tender.

The nearest related guide in our catalogue, on packaging lead-time buffers and working capital, looks at how inbound lead time affects inventory; this article is narrower and stays with the ocean contract that sets the price of that lead time. More freight rate and mode guides are on the logistics and supply chain hub.

If you are planning an ocean tender and want contract type, minimum quantities and invoice audit rules set lane by lane from your own shipment history, you can send us your requirements through the RFP form and our team will answer with a lane-by-lane approach and timeline.