Contract logistics can be defined as the outsourcing of resource management tasks to a third-party logistics (3PL) company/service provider. Such tasks may include transportation and distribution of goods, warehousing, cross-docking, inventory management, packaging, and freight forwarding. While some companies manage their own logistics, others find it efficient to hire specialized logistics contract companies due to their ability to absorb more volume increases and fluctuations than an in-house operation.
Smaller 3PL companies may have better response times and expertise in a specific domain or geography, but larger companies provide complete full-service capability and global reach. Examples of global 3PL companies are DHL, Kuehne+Nagel, UPS, CEVA Logistics and more.
Important aspects of logistics agreements
From a 3PL perspective, the liability for damage to products is a way for the shipper to ensure that the service provider will be doing their utmost to handle the products with care so they will be delivered to customers in the best condition. It is essential that logistics agreements provide for liability and consequential damages allocation. Specifically, a number of issues should be addressed; the exact parameters for storage (temperature, humidity, storage time etc.), a reporting system for adherence to these parameters, and contingency plans in case the parameters fail to be met.
The type of compensation negotiated is of great importance, too. Either opting into a management fee with costs passed to the consumer, or choosing a static rate based on unit volume, including a well-structured compensation plan will help you define your expenses and your 3PL partner’s financial expectations.
Among others, the termination of obligations at the end of the business relationship (e.g., equipment leases, real estate, fixtures) should be also addressed. These terms may have financial impact both on you and the logistics providers. 3PL will need to make arrangements with staff and facilities to build customized infrastructure, secure equipment, capital expenditures, and real estate and they will need a specific obligation from your company to do so – a defined term of service in the contract and how outstanding obligations are to be settled.
Alterlaw’s expertise extends to all stages of the supply chain, from the moment the goods are still under the manufacturer’s custody to their sound receipt from the customer. We are happy to handle your claims in case of damage by evaluating all steps and their legal documentation. We can also provide you with legal assistance on safeguarding your interests when negotiating logistics agreements.