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.
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.
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:
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:
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 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.
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.
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.
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