Outsourcing warehousing and logistics services is an effective way to cut down operating costs and improve services. If you’re looking to procure these services for your business, here are some key issues to look out for when negotiating terms with the supplier.
It is common for a supplier to include a specific cap on its liability for loss or damage to goods or delay in delivery of goods under its control. Ensure that the cap is high enough to cover the likely loss to your business.
Where there is no cap, check the contract for any reference to other terms and conditions such as the Road Haulage Association (RHA) or the UK Warehousing Association (UKWA) which include a cap on liability. The RHA terms, for example, include a low cap based on the tonnage of goods carried. RHA and UKWA terms are not mandatory but are recommended by those trade associations.
Stock loss tolerances
The supplier may require a stock loss tolerance which effectively excludes the supplier’s liability for loss or damage to your goods below an agreed percentage i.e. you will take the hit on the first x% of goods lost or damaged.
As a customer, you will want that percentage set as low as possible. Make sure the supplier is required to keep accurate records of all goods in its possession and to carry out regular stock takes so that the supplier is held accountable for stock loss above the agreed percentage.
As the customer, you will want risk to pass as soon as the supplier has custody or control over your goods. The level of risk the supplier is willing to take will depend on the nature of the services you are procuring.
Title to your goods should not pass to the supplier at any stage and you should require full retention of title and access rights so that you can check that your goods are being stored in accordance with your instructions. In addition, you should expressly preclude the supplier from exercising any lien over your goods to avoid delays in recovering your goods.
You should consider what insurance you require the supplier to hold so that goods are covered when they are in storage at the supplier’s premises and when they are in transit. Check that you do not already hold insurance which covers the risk you want to pass to the supplier to avoid double insurance as that will inevitably mean increased costs for you, as the supplier will look to recover the cost of taking out insurance from you.
Make sure you include adequate TUPE provisions to cover the commencement and termination of service if there is even a small chance that it may apply. As a broad rule TUPE is likely to apply if entering the contract will cause changes in your workforce or the supplier is likely to use employees that spend most or all of their time in the provision of services to you.
Warehousing and logistics services are vulnerable to interruption through force majeure events such as extremes of weather, fuel shortages, transport delays and industrial action. Consider carefully whether the supplier should be able to claim force majeure protection for these events. Where the supplier is entitled to claim service relief, make sure that you are not obliged to pay for any services that have not been provided whilst the force majeure event is continuing.
These are some key issues that you should look out for in warehousing and logistics contracts. Other provisions may require careful consideration to ensure that your arrangement with the supplier meets the specific needs of your business.