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:
- 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:
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
- 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.
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.