Law

Third-Party Logistics Agreement: Key Legal Considerations

Since the rise of online retail, a lot of Australian businesses have started outsourcing logistics and supply-chain operations to third-party logistics companies. Outsourcing can help them enhance their efficiency and streamline their processes.

However, while outsourcing is a smart move, the legal side of negotiating contracts can be overwhelming and stressful, especially if you’re not well-versed in these things.

3PL services are vital for both parties involved (the customer and logistics company), and that’s why a written contract is crucial.

So, here are all the important considerations in any 3PL agreement that you should know about.

Introduction of the parties and the primary objective of the agreement

Start your 3PL agreement by clearly defining the parties involved. Including both your and 3PL company’s name, license, address, and ID number will prevent any confusion.

For instance, you’re negotiating a contract with a trustworthy 3PL Brisbane. In the contract you will define them as a “service provider”, and you’ll be the “client”. This distinction will ensure that anybody reading the contract will know who is who.

In addition to that, you should also state the primary objective of the agreement. Doing this early on will enable anyone reviewing the document to quickly grasp its purpose without needing further reading.

Describe 3PL services

3PL agreements come in many shapes and forms. There isn’t a one-size-fits-all agreement. That’s one of the main reasons why you should be well-equipped and prepared when negotiating these contracts.

A 3PL company can provide a wide variety of services, and that’s why it’s essential to make a list of all the services that will be provided for your business. Neglecting to do this could lead to a situation where your expectations exceed the services the 3PL provider is ready to deliver for the agreed fees.

Examples of typical 3PL services that clients often procure include inventory management, warehouse operations, order picking and packing, freight forwarding, and handling returns.

Specify the pricing and payment terms of the agreement

Yet another crucial part of the agreement is to define the service pricing and payment terms. Each 3PL service should have a price and fee written next to it. At the end, there should also be a space for the total cost of all the services included in the agreement. Having this written down will help you review all the services you’re paying for whenever you want.

Including payment terms in your agreement will help you define deadlines, payment frequency, and other similar information.

Additionally, you should also add a clause about price increases in your agreement. Since the prices of 3PL services fluctuate, and may increase over time, this clause will guarantee that the prices will be fixed for a year.

Clarify the agreed duration and conditions for termination

Most businesses will hire a 3PL company for a year. However, there are also some examples of companies requiring multi-year or only monthly deals. Whatever your case is, it’s smart to include these terms in your agreement.

Most of these terms also have a termination clause with them. This clause states that all the deals will be terminated once the 3PL contract is over.

You can also add a termination clause if you think it’s necessary. In this clause, you can allow either party to terminate the agreement before its expiration by providing a three-month advance notice of termination.

Specify the agreed liability and insurance

Including the liability and insurance clause in your agreement will outline required insurance policies for each party during the agreement. This will also include the specified coverage amounts. In a 3PL partnership, insurance typically covers products, equipment, and warehouse employees against damages or losses.

Some of the most common insurance coverage includes business interruption insurance, warehouse liability policies, and transportation insurance, to name a few.

Include the confidentiality of the service

Service confidentiality must be included in the agreement if you don’t want your internal information leaked. For a partnership of this sort to work well, both parties need to share internal information.

Both parties should sign a mutual non-disclosure agreement (NDA) to safeguard in-depth discussions about the project and the capabilities of the 3PL provider. “Mutual” ensures that the NDA provides equal protection for the intellectual property of both parties.

Bottom Line

The 3PL agreement is crucial for a successful partnership between your business and a logistics company. As you can see, this agreement should consist of all the important information. This article will be useful if you’re unfamiliar with negotiating all these intricacies.