Aug 2, 2023 | Blog
The supply chain is so complex that even the biggest businesses outsource some of their processes to other companies. You must sign agreements with the manufacturers, vendors, suppliers, and logistics service providers to ensure that the service level agreements do what you want them to do. The provisions of these contracts vary according to the client’s market niche and the logistics services it needs.
What is a 3PL Service Agreement Template?
When a company hires another entity to provide logistics services for it, this is called third-party logistics, also known as 3PL. If you Google any topic related to logistics, you will find that most major companies in a variety of sectors use 3PL. In business, airtight contracts with lots of details are the surest way to avoid trouble. If you simply base your business relationship on a verbal agreement or vaguely written contract, you are asking for risk, conflict, legal disputes, and financial losses. Do not simply let a carrier start providing transportation, shipment, or delivery services for you without first signing a logistics contract.
A 3PL service agreement outlines the business relationship between your company (the client) and the company that will be providing logistics services for you. At minimum, this document should list the names and contact information of the parties (you and the logistic service provider) and the services the logistics service provider will provide. It should also contain clauses about when the agreement begins and ends, how much you will pay for the services, and the consequences if one of the parties does not fulfill its contractual obligations or is not in compliance with the terms of the contract.
In other words, a 3PL service agreement needs all the elements of business agreements. Therefore, downloading a PDF file of a 3PL service agreement template is a good place to start when drafting your agreement.
Drafting a Third-Party Logistics Agreement
No two business agreements are alike. The main limitation of using a downloadable 3PL logistics agreement template is that they are too generic. All business agreements must respect the law and serve as a basis for contract negotiations, but your 3PL logistics agreement should also include detailed definitions related to the specific activities in which the parties are agreeing to engage. For example, these documents should clearly identify the names and taxpayer ID numbers of the companies involved as well as the contact information of the employees or partners who are signing the agreement on behalf of the company.
Next, it is time to outline the main terms of the agreement. What will the service provider do for the client? How much must the client pay? Must the client provide the service provider with any equipment to fulfill its tasks?
The biggest failure of most do-it-yourself business agreements is their failure to address all the legal nuts and bolts. If contract templates contain these provisions at all, it is probably just a legal boilerplate that is not specific enough to protect you from liability in the event of a dispute or a breach of contract. For example, what is the deadline to give notice in writing if one party wants to terminate the contract early without paying a penalty? Which party is responsible for paying for the insurance that covers loss or damage to the client’s merchandise when it is in the custody of the carriers? The contract should also contain language about which state’s laws have jurisdiction to rule on lawsuits arising from the contract. Must the parties consent to arbitration in accordance with the provisions of the contract before they have the right to file a lawsuit?
3PL Service Agreement Template Sample Download
It is possible to find downloadable forms that you can use as a starting point for your agreement with a 3PL service provider. The details of the agreement will be different depending on the services you are outsourcing. For example, is the 3PL service provider warehousing your items in its own facility, or is it handling order fulfillment, inventory management, pick and pack in your company’s own warehouse? Is it tracking orders and reporting them to the client, or is it transporting shipments of freight directly to customers?
Key Terms in a 3PL Service Agreement
Your 3PL agreement should identify the parties to the agreement and specify when and how each party shall perform its duties. It should specify what changes to the agreement one party can do at its discretion, and which ones it can only do with the approval and consent of both parties, including but not limited to adding more parties to the contract or extending the term of the contract.
The 3PL service agreement should state the expectations about invoicing and payment. If one party loses its ability to continue the performance of its contractual responsibility, the contract should contain a reference to the first step each party should take. It should indicate which documentation is necessary to show receipt and approval of the contract. The dispute resolution portion of the contract is the most challenging to write.
Procurement Logistics
Procurement logistics is the phase of operations that deals with getting the materials you need to the right location. The supplies that clients might be procuring could be raw materials, parts to assemble in consumer goods, and even finished products to ship to consumers. The availability and cost of certain goods, especially raw materials, are sometimes outside the control of the parties to the contract. The contract should contain instructions for a system of notification and negotiation about the fluctuation of prices in response to the changing costs of materials.
Production Logistics
Production logistics deals with the aspects of projects that handle the production of goods and the processing of materials. You might wish to outsource this part of the project to facilities with a lot of specialized experience with these procedures. You can ensure that this part of the work meets safety standards when you outsource it to companies with the capabilities to produce goods at the volume, weight, sizes, and quantity that you need for reasonable rates. These companies will likely also have streamlined systems for pricing, tracking expenses, and collecting payments. You can simply trust that you will receive the products in the amount ordered and then pay the invoice and be sure that the workflow will proceed to the next stage smoothly.
Distribution Logistics
Distribution logistics deals with the manner in which the goods travel to the people all over the world who order them. In the interest of customer service, it is a good idea if you store your products in various warehouses. This requires the outsourcing of warehousing unless your company has enough resources to own and operate multiple warehouses.
Effective distribution logistics requires you to compile and study a lot of data. Consultants can analyze your data and give you advice about how best to meet the demands of customers while keeping your costs low. In addition to the consultant’s recommendations, you should solicit suggestions from customers about the accuracy of orders and the assistance they receive. You should also compile data about damages to property during the delivery process. If you take all of these KPIs into account, you can make the best decisions about your distribution logistics strategy.
Reverse Logistics
The purposes and intended results of reverse logistics are the same as any other aspect of logistics, except that the process moves in reverse. Customers send items back to distribution warehouses. The company processes the claims and sends payment back to the customers, or else sends them a replacement article to compensate for the defective one, in the case of exchanges.
This is the most common type of reverse logistics, but there are also others. For example, some categories of reverse logistics involve warehouses sending unsold or unsatisfactory products back to production plants. The efforts required for reverse logistics seem more burdensome than for other types because no one profits.
Critical Areas to Consider in a 3PL Service Agreement
A 3PL service agreement should be concise and readable. It should have the company name and contact information on a title page. The next part should be a checklist of instructions that the parties need to do to complete the agreement. This way, you can help the service provider achieve the agreement correctly and minimize delays.
Termination Rights
To be sufficiently detailed, a 3PL service agreement might be multiple pages long; this is just the nature of legal contracts. It is only fair if both parties have the choice to terminate the contract ahead of schedule. The contract should specify what each party must do to accomplish this and whether the other party is entitled to compensation.
Indemnification
The agreement should state the situations in which one party is not liable for financial losses incurred by the other party. These situations often include force majeure events, which are adverse events beyond the control of the parties. They include shortages of materials due to natural disasters or disruptions caused by wars.
Protection Against Double Payment
The agreement should include a detailed outline of the procedures for collecting payment. This ensures that the party receiving money gets their payment on time and that the payments collected are accurate. Insufficiently detailed agreements can lead to double payment and other mix-ups that can cause delays and confusion and harm the business relationship.
Key Takeaways
Outsourcing is the key to scaling your business, and you will need to rely on other companies to manage various parts of your supply chain logistics. Each company that provides logistics services with you should sign a 3PL service agreement to govern the business relationship between your company and the service provider. You can find 3PL service agreement templates available for download online, but you should modify them so that they are specific to the services you are outsourcing. It is also a good idea to have a business law attorney review your 3PL service agreement before you sign it.
Frequently Asked Questions
A truly successful business agreement must go through a few rounds of apparently picky questions to ensure that your agreement covers all of the situations in which you might need to resolve a dispute arising from the agreement. These are some questions that eCommerce business owners frequently ask when entering into service agreements to outsource their logistics services:
How Can I Ensure a Fair 3PL Contract?
It is the fine print about legal procedures that separates a fair contract for an unfair one. Anyone can write a contract agreeing that Party A will perform the following services for Party B, and Party B will pay Party A X amount of money, and the courts will probably enforce it. Fairness comes in the contractual procedures, though. What should they do to modify the terms of the contract if necessary? How should the parties repair a breach of contract? Which situations absolve the parties of liability if they cannot perform their contractual obligations? Should they resolve disputes through arbitration or litigation? If litigation is an option, which courts should have jurisdiction to rule on lawsuits arising from the contract?
What are Common Pitfalls in 3PL Contract Negotiation?
Money is the main reason that contract negotiations fall apart. Often, the service provider wants the client to pay more, or the client wants to pay less. In order to arrive at a price that is acceptable to both parties, they might have to change other terms of the contract.
How Can I Protect My Business in a 3PL Contract?
You can protect your business in a 3PL contract by making your contract as specific as possible instead of just using a generic one. You should also go over your contract with a lawyer before you sign.
Contact ShipHero today for a demo.
Aug 2, 2023 | Blog
Once your company grows large enough that you cannot meet the needs of all of your clients simply by fulfilling orders from your garage, you will have to outsource some services to other businesses. Whether this means choosing a fulfillment partner or finding a warehouse that provides inventory management to store your eCommerce products, or simply outsourcing shipping or customer service, third-party logistics (3PL) is a complex process.
Plenty of warehouses are willing to store your merchandise and handle your shipments, and people will claim to be experts on anything from sales and marketing to order fulfillment if it means that they can make a buck, but you can tell little about their handling of the execution of your fulfillment services just by listening to their sales pitches and watching their promotional videos.
Instead, you should thoroughly evaluate each vendor or service provider before you engage their services or pay them any money. You need a comprehensive 3PL evaluation template to get a realistic view of the service levels you can get from a prospective provider to see whether signing a contract to include this company in your supply chain logistics will be beneficial to your business.
Understanding the 3PL Evaluation Template
Think of the 3PL evaluation template as a job application. When you engage the services of a 3PL provider, you are not becoming partners in the sense of owning a percentage of each other’s business. The selection process is more like an employer choosing from among job applicants. You need to find out the details about how well the company can do the aspects of logistics that you need them to do, whether that is integrations, freight delivery, or returns from customers.
Before you decide which company to hire, you should write a checklist of evaluation criteria on which to base your decision. The criteria should not be vague, such as “quality of work.” Start by thinking about your requirements. For example, “We need A, B, C, D, and E,” and then write a list of questions that will tell you how well the prospective logistics provider can perform the services you need them to perform.
What is a 3PL Evaluation Template?
A 3PL template is a list of questions that a company you’re thinking of outsourcing some of your logistics processes to should answer in its proposal to provide services for your company. Many companies include the 3PL evaluation template in their request for proposals (RFP), and the applicants’ responses form the bulk of the proposal. If the proposal seems promising, then your company visits the service provider to discuss more details of a prospective business relationship before you make a commitment to hire them. The 3PL evaluation template could be a form that you ask prospective vendors to fill out, or it could simply be a detailed list of instructions and elements for them to include in their proposal.
Why Use a 3PL Evaluation Template?
A 3PL template enables you to be organized in the process of choosing service providers for outsourcing. By organizing your RFPs in checklist form, you can compare different companies’ answers to the same question at a glance. This will help you save time in the decision process and to focus on KPIs with greater accuracy and reliability. It also enables you to get down to nuts and bolts about costs and rates early in the process. Using a 3PL evaluation template is a mark of good planning and wise use of your company’s resources. When you take the responsibility to set goals before making demands of others and to communicate your expectations early and clearly, the result is greater success for the project and your supply chain partnerships.
Understanding the Importance of 3PL Evaluation and Selection
Service providers are more likely to want to participate in the operations of projects when the people in charge of the project have their act together. The worst boss is someone who does not know what they want and who wastes everyone’s time and resources by constantly changing their mind about procedures and workflow and giving self-contradictory instructions. If you are organized and forward-thinking enough to distribute a uniform 3PL evaluation template to all of your prospective logistics providers, you make a good first impression.
Even more importantly, a 3PL evaluation template with a breakdown of all of your requirements and specific questions about fees, pricing, and charges enables you to choose the company that will best meet your needs more accurately. You will find out a lot more about the company’s flexibility and capacity for meeting your needs than you would by simply asking open-ended questions such as, “What can you do for us?” If you have a system for evaluating 3PL providers, this will give you the insights that you need for the growth and success of your company.
The Role of Logistics Outsourcing in Supply Chain Management
Only the biggest companies have the capabilities to manage an entire supply chain network. Some examples of areas where companies outsource operations include warehouse management systems (WMS), fulfillment, and shipping. You know your business has outgrown your garage when you consider signing a service level agreement (SLA) with another company to outsource some of the work.
The Essentials of 3PL Evaluation and Selection Phase
Service level agreements are only the beginning of the last steps in outsourcing items on your to-do list. First, you should gather as much data and information about the company to which you are thinking of outsourcing work.
Data to source includes:
- Technology platform and specifics
- Pricing schedule & contract requirements
- Service level agreements
A 3PL evaluation template is one of the most valuable tools to which you have access. An effective 3PL evaluation template will help you pick the best company to meet your needs. Best of all, even an evaluation template with multiple categories doesn’t take up any storage space. It is small enough that numerous completed templates will fit in your email inbox.
At the beginning of the template, you should state your requirements for the services you wish to engage in, the term of the anticipated agreement, and the rights that each party will retain if you sign an SLA. You should then include a section with questions about the company’s products or services, capabilities, and previous projects and one for prices, at minimum.
Key Points in the 3PL Evaluation Phase
There are three key points of the 3PL evaluation phase.
Introduction
This stage usually begins with exchanging links and slide presentations by email and then proceeds to virtual meetings. During this phase, you get to present your brand idea and get a feeling of whether your company’s style of doing business is compatible with that of the other company.
Evaluation
The next phase is the reporting of first impressions. You and other team members at your company discuss whether you want to explore a business relationship with the service provider. Factors such as the company’s location might be as important as whether the company has a proven track record of success. It could be a small detail that tips the scales in favor of the company or against it.
RFP
The third step is to send a request for proposal (RFP). It is much easier to do this if you have already prepared an evaluation template, or several variations on one, that you send to all 3PL providers with which you are considering a business relationship.
Preparing for the 3PL Evaluation Phase
In a perfect world, you could use the exact same evaluation template for every company to which you outsourced tasks. It is not realistic, however, to ask the same questions to a company that provides an application programming interface (API) such as a trucking company or one from which you want to rent warehouse space.
If you have previously made a 3PL evaluation template when outsourcing other services, you are on the right track. You can simply modify your existing template. Some of the questions will still be relevant, but you may need to remove some of them and write some new questions.
Designing an Objective Scoring or Evaluation Process
It is not enough to decide on a list of questions to ask all prospective vendors in your 3PL evaluation template. You must also decide on the criteria according to which you will rate their answers. For example, fill in the responses that the ideal respondent would provide, and see how closely actual applicants’ responses match them. For example, if you need a company to do A, B, C, and D in a particular part of the process, give an applicant four points if it promises to do all of those things, three out of four if it only does three of them and so on. If you are willing to pay X dollars for a particular service, assign the applicant four points if they quote you X or less than X, three points if the amount they quote you is between 100 percent and 110 percent of X, two points if it quotes you between 110 percent and 120 percent of X, and so on.
Formulating Your Request for Tender (RFT)
A request for tender (RFT) is a formal invitation for suppliers to submit proposals to provide their services. You should finalize your 3PL evaluation template before issuing the RFT. You may choose to include the evaluation questions in the RFT, or you may simply include a general description of the services you need and the criteria on which you will evaluate applications. If you choose the latter option, then ask prospective applicants to email you to request the complete application form.
You should include a deadline on your RFT. The level of detail in which applicants can complete the proposal by the deadline can tell you a lot about how successfully they can complete the tasks that you are outsourcing to them.
Building a Cross-Functional RFT Evaluation Team
If the RFT has a single author, this is a recipe for trouble. It is almost as bad as downloading a sample RFT and simply adding your company’s name and logo to it. If one person writes the RFT singlehandedly, it will only reflect that person’s vision and concerns. You should assemble a team of employees from different departments of your company. They should write the RFT together, or at least review the draft of the RFT that you have written by yourself.
The people who wrote the RFT should review the applications, and so should others who did not participate in writing the RFT. You may wish to hire outside consultants to contribute to the writing of the RFT or the review of applications.
Maintaining Objectivity Throughout the Evaluation Phase
An objective process for evaluating 3PL bids is part of fair competition in business. Even if you have contacted certain companies individually to ask them to submit bids, the people who review the applications should not know which applicants submitted which bids. If an applicant later asks you why you did not choose them, you should be able to give specific reasons, none of which relate to your pre-existing relationship with another company.
Key Takeaways
Before you outsource services to another company, you should know what you are looking for. A uniform 3PL template will help you accurately choose a company that provides the services that you need. It can also help you be fair and objective during the selection process.
Frequently Asked Questions (FAQs)
Outsourcing requires as much planning and organization as doing everything in-house. These are some common questions that eCommerce businesses ask about 3PL evaluation templates:
How Can I Improve My 3PL Performance?
You can improve your 3PL performance by accurately assessing which tasks your company can handle in-house and which you should outsource. When you outsource work, you can get the best results by being clear with suppliers from the beginning about your expectations. 3PL evaluation templates serve this goal.
How do you Evaluate Logistics Performance?
You can evaluate logistics performance by measuring the speed and accuracy with which the logistics provider fulfills its tasks within the supply chain. You can also evaluate the extent to which the supplier helps you save on costs.
What are the Four Functions of 3PL Providers?
The four functions of 3PL providers are warehousing, transportation, distribution, and consolidation. Many eCommerce companies find it cost-effective to outsource their warehousing tasks to a company that deals exclusively with warehousing.
Contact ShipHero today for a demo.
Aug 2, 2023 | Blog
Many businesses work with third-party logistics (3PL) companies to handle their logistics processes. Different companies have different needs, and you need to outline the parameters of each partnership to ensure smooth collaboration. 3PL contracts can let you do just that.
3PL contracts outline the terms of your partnership and ensure everybody agrees with the deal before moving forward with the business relationship. However, drafting contracts from scratch each time can take time. That’s where 3PL contract templates come in. They’re pre-made documents that let you draft contracts quicker, so you can seal the deal sooner.
What goes into a 3PL contract template, and what do you need in them? Keep reading for a thorough guide to contract templates, complete with downloadable samples!
What Is a 3PL Contract Template?
A 3PL contract template is a pre-written pattern for a third-party logistics agreement. It generally contains standard information that won’t change between partnerships. To accommodate different potential partners, a 3PL contract template usually has fillable parts to put in the partner’s information, cost calculations and other non-standard details.
Contract templates save time and effort because you don’t have to write a new contract every time you want to make a new logistics agreement. In addition to time and cost savings, contract templates make approval quicker because you already know what’s written in these contracts. Instead of reading the entire document, you can just focus on the variable fields to ensure everything is good to go before signing.
Understanding Various 3PL Contracts and Templates
Different companies want different things from a third-party logistics provider. For instance, some clients may only need warehousing services, while others need all-in logistics management. Templates help, but 3PL companies might not be able to use the same template for all their business deals.
Different needs mean you can’t just use any contract template you find on the internet as-is. You either need to make a template from scratch or modify a template from the internet to suit your company’s unique needs.
Here’s a look at two downloadable 3PL contract templates you can use for inspiration:
Contract for Third-Party Logistics
This 3PL contract template is a good baseline for your own version. The document tells you what to put in each fillable field, which simplifies the drafting process. It also includes lots of common clauses that you can either implement in your own template as-is or modify to fit your company’s needs.
Sample third-party logistics contract
Third-Party Confidential Logistics Contract
In some cases, you may need a confidential contract due to copyright-protected products or other reasons. In that case, you should use a 3PL contract template with built-in confidentiality clauses to protect you or your partner’s company. Make sure the clauses are strong and thorough enough to meet both parties’ needs and that your staff upholds the confidentiality rules throughout the partnership.
Here’s a sample confidential 3PL contract to inspire your own template:
Sample confidential third-party logistics contract
Key Elements of a 3PL Contract
What does a 3PL contract contain? While the specifics may differ, there are some elements found in many contracts across the logistics service industry.
Here’s a look at many important elements commonly found in 3PL contracts. This isn’t a definitive list, so your contract may have more or less elements depending on the nature of your business.
Duration of the Agreement and Renewal
The duration of the agreement governs how long this contract will last. This element also explains what to do in case either party wants to renew the contract.
Warranty Clauses
3PL companies handle other people’s goods. Warranty clauses give their clients peace of mind by outlining how the 3PL will be handling their products and what happens if the company fails to do so. 3PLs should work with their legal team to make warranty clauses that put clients at ease.
Damage and Liability Provisions
Damage and liability provisions define who’s responsible when products are damaged. These provisions limit either party’s liability, so they don’t have to take the brunt of the responsibility if something goes wrong during your partnership.
Inventory Management Expectations
Inventory management expectations outline the services a 3PL is giving the client and what metrics they should be judged by. The 3PL’s service level agreements (SLAs) and performance metrics are generally included here.
Some example SLAs you might find here are:
- Shipping cutoff times for same-day orders
- International shipment speed
- Returns processing speed
- Order-picking error rates
Defining SLAs is a balancing act since 3PLs must protect the client’s business without imposing overly high standards on their team.
Both parties should come up with these SLAs together to ensure they’re balanced. You should also hold recurring SLA re-alignment calls to ensure the standards are always clear.
IT and Reporting Requirements
IT requirements define what kind of software companies use to provide 3PL services. Most 3PLs use warehouse management systems to conduct their services. But if either party needs to use other 3PL software or hardware in this particular partnership, they’re outlined here.
This section also outlines the parameters of the 3PL company’s reporting. What items should be reported, what form the report should be delivered in and report frequency should be well-defined to ensure the client stays updated on what goes on in their logistics operations.
Invoicing and Payment Terms
This section governs how the 3PL company gets paid. It defines when they send the invoice for each payment period and how the client shall pay for services rendered. The 3PL company can also explain the penalty for late payments here. For instance, the 3PL company can say that it has the right to cease operations if the client doesn’t pay invoices on time.
Legal Claims and Governing Law
This section defines what kind of methods the signing parties use to settle legal affairs. Generally, you can choose to solve disputes through arbitration or the courts. Consult with your legal staff or attorney to choose the best dispute resolution method for your company.
Inventory Shrinkage Allowances
Inventory shrinkage happens because of many things. It can be paperwork errors, system issues, or even theft. To ease the client’s mind, 3PLs need to put an inventory shrinkage allowance in the contract.
Here’s how inventory shrinkage allowances work: Let’s say a 3PL company puts a shrinkage allowance of 0.5%. This means the client will bear the first 0.5% loss, but the company will pay for any losses above 0.5%. This limits the client’s risk and ensures they won’t lose too much money even if shrinkage happens.
The 3PL should clearly limit the scope of inventory shrinkage. Most 3PL companies only account for the shrinkage that happens in their warehouses. If shrinkage happens while the products are with clients, manufacturers or shipping carriers, they won’t count against the allowance.
Forecasting Requirements
Product demands fluctuate, so clients need to keep their 3PL partners informed of any potential spikes in demand due to holidays, promotional campaigns and other marketing efforts. In this section of the contract, you need to outline how far in advance the client needs to send order forecasts so the 3PL’s team can prepare the personnel and warehouse space needed to handle the influx of orders.
The client probably can’t forecast demand spikes fully, but the 3PL can set an accuracy range instead. If the client’s forecast is way off the mark, the 3PL can charge extra for additional labor and services provided.
A good way to ensure demand alignment is holding a regular call to discuss upcoming promotions, holidays and other events that may increase product demand.
3PL Visits and Account Management
Clients can better understand how the logistics company treats their products when they visit a fulfillment center. This is completely normal since they’re paying a pretty penny to receive logistics services.
However, 3PL providers should regulate client visits by requiring prior notification that they’re about to visit. This way, a company representative can accompany the client to answer their questions.
Another thing this section governs is their account management. In many cases, business relationships heavily hinge on relationship management between the two parties. This section should outline the account manager’s standards and decide whether either party can ask for their removal if they consistently underperform.
Insurance Coverage
This section outlines what kind of insurance each party should have for the duration of their 3PL partnership as well as their coverage values.
Common insurance coverage types 3PL contracts may stipulate include:
- Warehouse legal liability: This coverage protects the client’s goods if they’re damaged by careless handling, theft and similar causes.
- General liability: General liability insurance covers medical costs, legal fees, damages and other costs that may arise after somebody gets injured on the 3PL’s business premises.
- Business interruptions: Business interruption insurance compensates the logistics company if they can’t run warehouse operations due to natural disasters or other causes of interruption.
- Transportation coverage: Transportation coverage compensates the client if their goods are damaged by carrier negligence during transport.
- Employee dishonesty: This covers losses caused by theft, embezzlement, forgery, fraud and other dishonest acts perpetrated by employees.
- Worker’s compensation: This provides warehouse workers with money to cover medical bills and living expenses if they get injured on the job.
Employee Hiring Provisions
Since 3PL companies and their clients work together closely, it stands to reason one party might be interested in hiring employees from the other. To prevent conflict, you need to outline the terms and conditions of hiring each other’s employees.
If one party allows the other to hire terminated or laid-off employees, you can implement a waiting period before they’re eligible for employment.
Provisions for Independent Contractors
This section usually comes into play for companies positioning themselves as independent contractors. Essentially, it outlines that the logistics company is an independent contractor, not a joint venture partner.
Indemnification Clauses
An indemnification clause shifts the cost of lawsuits from one party to another. An example of indemnification happens when a 3PL company asks the client to pay legal fees if a third party ever sues the company for harm caused by the client’s product. Since the client is the supplier, assuming the 3PL wasn’t negligent, they’re responsible for taking on the lawsuit.
Since this is a legal matter, you should consult your lawyer when drafting the contract template’s indemnification clause.
Advertising Rights
When a client gives a 3PL company advertising rights, it’s allowed to use the client’s company name and logo on promotional material like websites, brochures and trade show booths. This section governs which marketing materials 3PLs can put the client’s company in.
Assignment Provisions
Assignment provisions rule whether this contract can be assigned to another party without the consent of the co-signer. A scenario where this provision may come into play is if another company acquires the client.
Intellectual Property Clauses
Both signing parties of a 3PL contract have intellectual property to protect, and these clauses govern how to protect them. Things to protect as intellectual property include:
- Order forecasts
- Product materials and specifications
- Customer order details
- Marketing methods and techniques
Agreement Termination Clauses
These clauses govern how either party can terminate the contract. Naturally, these contracts are terminated simply by letting the agreement period pass.
But you can include a provision where one party can cancel the service agreement by submitting a termination notice. Typically, this notice period is two to three months.
Price Increases and Adjustments
The cost of eCommerce fulfillment services may increase due to various price hikes as time passes. This section outlines the regularity and amount of a logistic service provider’s price adjustments. Generally, price increases happen annually based on a certain metric, like a set percent or the consumer price index.
Key Takeaways
A 3PL contract defines the terms of a working agreement between a logistics provider and its client. It governs every detail of the relationship to ensure everybody knows what they’re getting into and prevents disputes from happening down the line.
3PL contract templates help you draft contracts quicker since you don’t have to make contracts from scratch for each partnership. Instead, you can start with a pre-written document and modify the contents according to your needs.
In addition to good contracts, a robust warehouse management system (WMS) is integral to a 3PL company’s success. ShipHero’s WMS is here to help 3PLs improve order accuracy, reduce warehouse costs and so much more. Contact us today to learn how our WMS can help you.
Frequently Asked Questions
What is a 3PL Service Agreement?
A 3PL service agreement is a document that outlines the rights and obligations of a 3PL company and its client. It governs the 3PL’s scope of work, work standards, service prices and other essential details of the logistics partnership.
What are Some Common Elements in a 3PL Contract Template?
Some common elements in a 3PL contract template include:
- Contract duration
- Inventory management standards and expectations
- Price increases and adjustments
- Warranty clauses
How Can a Business Ensure a Fair 3PL Agreement?
To ensure a fair 3PL agreement, businesses should hold discussions and find a solution that benefits the 3PL company and the client.
Aug 2, 2023 | Blog
A business often works with third-party logistics (3PL) companies to handle logistics operations. Like other business partnerships, you need documents to solidify the working relationship to protect both parties and resolve future disputes. That’s where a 3PL agreement comes in. It outlines essential details about the partnership like the 3PL’s services, the price it charges and the length of their working relationship.
However, it takes a lot of time to draft agreement documents for every logistics partnership from scratch. That’s where 3PL agreement templates come in. Instead of rewriting everything each time you’re about to make a deal with a company, you can reuse the template and finish a draft ready to review.
A good understanding of 3PL agreement templates helps you make one that fits your business needs. Read on to learn more about 3PL agreements, and download our 3PL agreement samples for inspiration!
What Is a 3PL Agreement Template?
A 3PL agreement template is a prewritten document containing all the essential parts of a third-party logistics agreement. It includes things like a statement of work, performance standards, price quotes, payment terms and more.
Generally, the template has all the standard clauses written in, so you don’t have to rewrite them before sending an agreement draft to the other party. The template also has fillable blank spaces that you can use to input variables like company details, pricing information and other things that can change with every new agreement.
A 3PL agreement template makes drafting documents more straightforward. It also reduces human error because there’s a diminished chance of your team accidentally leaving out an essential part of the agreement.
Basics of a Third-Party Logistics Services Agreement
At its core, a third-party logistics services agreement is a deal between a 3PL company and its client. It’s a document that outlines each party’s rights and responsibilities as part of the logistics service.
Your 3PL services agreement may contain details about the services the 3PL provides, like:
- Warehousing
- Inventory management
- Picking and packing
- Distribution management
- Freight management
A 3PL services agreement may also contain clauses and points that protect all parties in the deal and help resolve disputes if any arise in the future.
These agreements are often complex and have many parts that need detailed examination, so it’s a good idea to bring your legal team into the loop. They can review the agreement and provide advice on things that you might have missed.
It’s also important to sign an agreement before starting a partnership. Otherwise, one or both parties may need to stop their operations to negotiate a deal, which may hurt their business as a whole.
Drafting a Third-Party Logistics Agreement
Before you create a template, you need to draft your first third-party logistics agreement. As a general rule, your typical 3PL agreement must include:
- Statement of work: This point outlines the third-party logistics provider’s responsibilities. Depending on the client, the 3PL may be asked to take over their company’s entire logistics operations or just parts of it.
- Performance standards: Performance standards or service level agreements (SLAs) govern the 3PL’s work performance. An example SLA would be “Orders received before 2 p.m. will be shipped out on the same business day”. The 3PL company needs to uphold these standards or potentially face penalties.
- Price quotes: The 3PL’s price quotes should include all requested services, so the prospective client can review and approve the total 3PL service cost.
- Payment terms: The agreement should clearly outline the 3PL’s payment terms to prevent pay disputes.
- Legal clauses: Legal clauses like guarantees, liability limitations and termination conditions should be added by a legal advisor to ensure both parties are well-protected after signing the agreement.
Another important thing to remember: 3PL agreements need to be fair and benefit the logistics provider and the shipper. Always seek to strike a balance and a win-win deal to ensure neither side feels like they’re getting into a bad deal.
Effective 3PL Logistics Agreement Templates
Every 3PL partnership is different, so there’s probably no 3PL logistics agreement template you can use right out of the box. However, you can use templates available on the Internet as jumping on points to create your own 3PL logistics agreement template.
Here are two sample third-party logistics agreement templates you can refer to when creating your own document:
Click to download a logistics agreement sample.
Click to download a logistics contract sample.
Essential Components of 3PL Logistics Agreement Template
Drafting the right template means eliminating a lot of work in the future since you don’t need to rewrite the agreement document with each partner. However, that also means you must make more effort upfront to create a complete, well-written 3PL logistics agreement template you can use with all prospective logistics partners.
Here, we’ll outline the steps to creating a great 3PL logistics agreement template. Remember that having an attorney or your legal team preside over the template creation is a good idea to ensure everything is legally sound.
1. Introduce the Parties involved and the Agreement’s Purpose
The first thing to do when creating a 3PL agreement template is to clearly define the parties involved. To prevent confusion, you should include spaces to write each party’s name, license or identification number and address.
From there, you should further define the parties more than just “Party A” and “Party B.” For instance, you can use the designations “Service Provider” and “Client” so anybody reading knows who’s who at all times.
You should also state the purpose of the agreement document early on. It helps anybody reading the document learn its purpose at a glance without having to read further.
Both logistics providers and clients may also use certain business jargon that the other party may not understand. If the jargon is essential to understanding the document, include a section for term definitions early in the document.
2. Describe the Agreed 3PL Services
A good 3PL agreement needs to be detailed, so the next thing to do is outline the services provided. This part includes the statement of work, which lists the 3PL’s responsibilities to the client.
The 3PL’s statement of work may vary depending on what services the client wants. Some of the more common 3PL services a client might purchase include:
- Inventory management
- Warehousing
- Picking and packing
- Freight forwarding
- Returns management
3. Outline Expected Performance Standards
This part is where you include the SLAs of the 3PL services. Well-defined working standards help clients know what to expect from the 3PL company’s services. Because these standards are made with mutual agreement, the client won’t impose overly high standards that may make the 3PL’s work harder.
Example standards to outline in this section include:
- Order processing and shipping cutoff times
- Package shipping speed
- Order fulfillment and inventory picking error rates
- Inventory shrinkage allowance
- Returns processing rules
It’s also a good idea to schedule regular standards review calls to check whether the SLAs need updating.
4. Define the Pricing and Payment Terms of the Agreement
Naturally, outlining service pricing is an essential part of an agreement. There should be a space to write down an itemized list of the 3PL’s offered services alongside their individual costs and charges as well as a space to put down the total cost. This helps the prospective client review the services they’re paying for.
Note that service pricing may not be static because your 3PL operational costs may increase as time passes. To prevent future disputes about pay increases, include a clause about 3PL price increases that details when the 3PL company’s service costs might go up.
Most 3PL companies give clients a service price guarantee for one year after they sign a contract. After the first year, they usually readjust the service costs and raise them based on a fixed percent increase or other methods.
In addition to service pricing and potential changes, including the payment terms for logistics services. This section usually defines the payment frequency, deadline, who to pay to and other related information.
5. Explain the Agreed Term and Termination
3PL agreements usually have a set term. Most clients contract a 3PL for one year, but you may find clients wanting monthly or multi-year deals. However long the service deal is expected to last, outline the term clearly in your agreement.
Most agreements have a termination clause that says the deal will end once the contract is over. However, you can place additional termination clauses if necessary. For instance, you can allow either partner to terminate the agreement before the contract ends by submitting a termination notice three months in advance.
6. Define the Agreed Liability and Insurance
The next thing to outline in the agreement is liability and insurance. This section covers what insurance policies each party needs to have during the agreement as well as their coverage amounts. In a 3PL partnership, insurance is usually used to insure products, equipment and warehouse employees from damages or losses.
Common insurance policies stipulated in 3PL agreements include:
- Warehouse liability insurance
- Business interruptions insurance
- Transportation insurance
- Employee dishonesty insurance
- Worker’s compensation
7. Outline the Confidentiality of the Service or Agreement
Both the 3PL and its client often share internal information during a logistics partnership, so strong confidentiality protection is necessary. The confidentiality clause should cover things like:
- Product specifications and confidential materials
- Customer contact information and order history
- Business demand forecasts
- Unreleased promotional materials
If there are too many items to cover individually, you can apply a blanket non-disclosure clause to all copyrighted and confidential materials.
8. Choose a Dispute Resolution Method for the Agreement
Even if you work with someone you trust, disputes may still occur. Defining how you’ll resolve disputes helps things get resolved quicker. Generally, companies have the choice of settling legal disputes through arbitration or court. Most companies prefer to settle disputes through arbitration because it’s less expensive than going to court but still has the full force of the law behind it.
9. Include Any Miscellaneous Information
Lastly, you can include any additional information not covered in the previous points. For example, you can include provisions that cover what happens in case of things outside your control, like acts of God and government action.
Key Takeaways
A 3PL agreement forms the basis of your logistics partnership with a logistics company or client. It documents both parties’ obligations, rights, payment terms and other essential information related to the deal. However, these legal documents take time and effort to get right, so you need a template to expedite the process.
A 3PL agreement template includes all the consistent, static information that’s available in all your agreement documents. All you need to do to finish the draft is fill out the agreement-specific information. In addition to making the process faster, it reduces human error because you won’t accidentally leave out an important clause. This way, you can send the draft to potential partners and close the deal sooner.
3PL companies want to provide the best service to their clients. ShipHero’s warehouse management system helps them achieve that through increased shipping accuracy, warehouse cost reduction and more. Contact us today for more information!
Frequently Asked Questions
How do you Effectively Draft a 3PL Agreement?
You can effectively draft a 3PL agreement by including all the necessary details like the statement of work, payment terms, SLAs and more. Make sure all the essential information is included in the 3PL agreement draft, then send it to your legal team for double-checking.
Once it’s approved by legal, your 3PL agreement draft is ready to show to the prospective partner.
What are the Key Considerations While Negotiating a 3PL Contract?
When negotiating a 3PL contract, the key considerations are:
- Get everything in writing to prevent misunderstandings
- Create clear, well-defined project timelines
- Agree on reasonable service-level agreements
- Settle on a method to resolve disputes
How do you Choose the Right 3PL Provider?
You choose the right 3PL provider by first learning what your company’s logistics needs are. Then, you can research the 3PL providers on the market and choose the one that can address those needs at a reasonable budget.
Aug 2, 2023 | Blog
Working with a third-party logistics (3PL) company helps a business run its logistics operations smoothly. Many companies choose to work with 3PL partners because they can’t handle the logistics process in-house due to the large workload or other reasons.
All 3PL partnerships or service agreements need to start with a contract. 3PL contracts outline the 3PL company’s obligations, responsibilities, rates and other essential things to a 3PL partnership. Contracts are important because they ensure both parties understand what kind of agreement they’re getting into before starting the partnership.
Drafting a contract needs a lot of attention, effort and time. Fortunately, you can make templates to make contract drafting easier. Read on to learn more about 3PL warehouse contract templates and what you need to include in them!
What Is a 3PL Warehouse Contract Template?
A 3PL warehouse contract template is a prewritten document used to draft third-party logistics contracts. It usually includes almost all of the standard points and clauses available in all your third-party logistics contracts, so you don’t have to type them all up repeatedly with every client. These templates usually have fillable slots for dates, names, prices and other details that can vary from client to client.
The main purpose of a 3PL warehouse contract template is to minimize the time needed to draft a contract, reducing the time it takes to complete a service agreement. Additionally, a 3PL warehouse contract template includes all the relevant clauses to an agreement, meaning you’re much less likely to accidentally miss a certain clause or point that may result in an issue down the line.
Exploring Different Types of 3PL Warehouse Contract Templates
Every 3PL company has different logistics offerings, so it stands to reason their 3PL warehouse contract templates would be different. There’s no “one-size-fits-all” warehouse contract template that works with everybody.
That’s the good thing about working with templates. You can modify them according to your company’s needs because you’re not stuck with what’s written on the documents.
Need inspiration for your 3PL warehouse contract template? Check these examples out:
Basic Third-Party Logistics Contract Template
This is a basic 3PL contract template that’ll work in most third-party logistic contract negotiations. Give it a read and modify the clauses and items according to your needs.
Click here to download a basic 3PL contract template.
Third-Party Logistics Contract Sample
Here’s another third-party logistics contract sample for you to draw inspiration from. As with the previous template, you can modify items as needed.
Click here to download a third-party logistics contract template.
Third-Party Logistics Contract in PDF
These days, contracts are generally saved in PDF file format. PDF documents can’t be modified, so you don’t have to worry about anybody tampering with the document about to be signed. Most PDF contract templates have fillable sections that the client and 3PL provider can fill in with relevant information. Here’s an example 3PL contract template in PDF form:
Click here to download a third-party logistics contract template in PDF.
Third-Party Confidential Logistics Contract in DOC
In some cases, 3PL companies may provide confidential logistics services to certain companies. Confidential logistics contracts generally have a stronger non-disclosure clause than other logistics contracts, meaning there are more serious legal consequences if either party breaches the clause. Here’s an example confidential 3PL contract in DOC form:
Click here to download a confidential logistics contract template.
Essential Points to Remember When Drafting a 3PL Warehouse Contract
Contracts define almost every aspect of your partnership with the client, so everything needs to be checked meticulously to ensure there aren’t any mistakes. Here are six important points to remember when coming up with a 3PL warehouse contract:
Identifying Each Party Involved
A good 3PL contract needs to identify all the parties involved properly. You do this by defining them early on in the contract so there’s no confusion for anybody reading.
When defining a company, you should include the company’s legal name, registration number and office address. When defining a person or individual, you use their full name, address and identification number. A detailed definition of every party mentioned in the contract prevents ambiguity that may be problematic down the line.
It’s also a good practice to define which party is the logistics service provider and which party is the client very early in the document to prevent ambiguous interpretation.
Seeking Legal Advice
Vague clauses and unclear sections can lead to costly disputes down the line. After drafting a contract, you should always have your company’s legal department double-check the document before making it a template.
Having a contract specialist go through and revise your contract right now is much better than dealing with disputes and legal consequences in the future.
In fact, it’s always a good idea to involve your legal staff or an attorney in anything legal-related, like contracts and service agreements. This way, they can ensure everything is above board, and you won’t face serious legal issues later.
Using Clear Language in the Contract
Contracts should be written in plain, simple English. Every industry has specific jargon and insider terms that outsiders may not understand, so including them in your contracts may confuse one of the signing parties. People who can’t understand the contract may not want to sign it.
Writing contracts in plain language helps all parties understand what’s outlined in them without a long round of back-and-forth questioning. This prevents ambiguity, improves clarity and ensures everybody knows what they’re getting into when they sign the contract.
We understand sometimes jargon is inevitable, though. If you have to include insider terms in the contract, make sure you define them well the first time they appear, so the reader can still follow along without being lost.
Allowing Room for Negotiations
There are almost always negotiations before two parties come to a business agreement. While you may have an idea of your perfect logistics service deal, the other party may have a different idea entirely. Therefore, it’s a good idea to leave some space for negotiations.
You can point out terms you’re willing to negotiate on the contract, like how long the service deal will last or how much the monthly charges are. This way, both parties can bargain with each other to get a deal that benefits everybody.
Defining the Specifics of the Agreement
A contract outlines what all agreeing parties can and cannot do. This is why you need to be specific in all aspects of the contract. Writing loosely-defined clauses and conditions provides much room for interpretation, which might lead to confusion. Worse still, loosely-defined clauses may cause either party to do something that harms the other without breaking the contract’s conditions.
Detailed, specific clauses and conditions prevent multiple interpretations and give the agreeing parties a rigid set of guidelines of what they can and can’t do. Simply put, defining your clauses ensures everybody knows the guidelines and can follow them easily. It also makes spotting contract breaches easier since you can just compare what the offending party did to what’s outlined in the contract.
Finalizing the Contract – Sealing the Deal
Before finalizing the contract, it’s always a good idea to give it another once-over. Check the deliverables, prices, standards and other things outlined in the document to ensure it’s what you and the client agreed on. Remember: it’s not enforceable if it’s not on the contract.
Once you’ve double (or even triple)-checked the contract, then it’s ready to sign.
Understanding Different Aspects of 3PL Warehouse Contracts
A 3PL warehouse contract generally outlines several parts of the logistics service agreement. Key aspects of 3PL warehouse contracts include:
- Error rates: Mistakes might still happen even in a fully-automated 3PL environment. While mistakes are inevitable, a 3PL should still set a maximum error rate to temper both parties’ expectations. For example, you can write that the logistics company guarantees 99.5% picking accuracy in the contract.
- Annual service price increase: Inflation, rising costs and other factors may cause 3PL service fees to rise. To ensure any surprise rate hikes won’t blindside the client, outline an annual service price increase in the contract.
- Cost breakdown: The contract should outline what the client will be paying for. Include a detailed cost breakdown that details what goes into the 3PL’s service charges, so there won’t be any ambiguity.
- Damages, liability and insurance: Your 3PL contract needs to outline how the logistics provider will be responsible for any mistakes or accidents on their watch. This aspect of the contract details loss-handling procedures, insurance claims and other related items.
Another essential aspect of your 3PL warehouse contract is its length. 3PL companies can offer varying service lengths depending on the client’s needs and budget. Here’s a look at how contract durations differ:
Month-to-Month Contract
Month-to-month contracts are popular with startup businesses since they’re constantly scaling up, and their logistics needs now may not be the same as their logistics needs in the future. With a monthly contract, the client can renegotiate and revise the agreement regularly.
While 3PLs can’t lock in a client for the long haul with monthly contracts, there’s always a chance of the client asking for an annual contract once their business starts to settle.
Another caveat of monthly contracts is that partners need to spend time renegotiating deals every month. If a 3PL company has many companies under monthly contracts, the negotiation process can take a lot of time and divert its attention from other business tasks.
Annual Contract
An annual contract locks the 3PL company and the client into a one-year deal. This means the deal you negotiate now stays in effect until the next year, eliminating the need for monthly renegotiations and revisions. It’s a common contract period because 3PLs can provide lower rates than monthly contracts, which benefits the client.
Fortunately, an annual contract isn’t as rigid as you might think. You can add an amendment provision to the contract, so that either party can renegotiate a new deal if necessary.
Multi-Year Contract
Getting a shipper to sign a multi-year contract means securing their business for the long haul. 3PLs can offer lower rates to appreciate the client’s commitment because they’ve nearly guaranteed the client’s business for two years or more.
However, signing a multi-year contract is only the first step for the 3PL company. It still needs to provide quality 3PL services to keep the client happy and uphold the standards outlined in the contract.
Service Level and Responsibilities in a 3PL Warehouse Contract
Clearly outlining responsibilities in the contract is essential in third-party logistics. This protects both clients and service providers since the responsibilities will be well-defined. Outlining responsibilities means the client knows the 3PL provider’s duties, while the 3PL provider won’t be expected to do things outside its scope.
Meanwhile, service level agreements govern standards. The client and the 3PL company must agree on what standards to implement and how to uphold them. This ensures all the logistics work is done according to a measurable set of standards agreed upon by both parties.
Key Takeaways
A contract is essential to 3PL partnerships since it governs the terms, conditions and standards of your working relationship with the client. It ensures both parties agree upon the services offered, the timeline proposed and the standards implemented.
A 3PL warehousing contract template helps you save time on contract drafts. It contains the essential standard clauses that don’t change with every contract, alongside fillable spots for client-specific information. Using a contract template reduces the likelihood of human error and ensures you finish the contract draft faster.
Once you’ve signed a 3PL warehousing contract, you need to uphold the standards outlined in it. ShipHero’s warehouse management system (WMS) can help 3PL companies meet contract standards and provide better logistics services to clients. Contact us today to learn how our WMS can help you.
Frequently Asked Questions
What Should a 3PL Warehouse Contract Include?
A 3PL warehouse contract should include items like:
- Service cost breakdown
- Error rate guarantee
- Service standards
- Scope of work
- Contract length
How Do You Choose a 3PL Provider for Warehousing Needs?
You choose a 3PL provider for warehousing needs by first outlining your requirements. Then, you can research the 3PL providers on the market to pick the one that can meet those requirements.
What are the Common Issues in 3PL Warehouse Contract Negotiations?
Some common issues in 3PL warehouse contract negotiations include:
- Poor contract structuring
- Lack of communication
- Vague clauses and conditions
