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.