Standard contracts bring peace of mind
November 15th 2010

Roger Williams, chief executive officer of UKWA, considers the importance of clearly defined terms and conditions. Standard industry terms and conditions are principally a mechanism to regularise the commercial relationship between the supplier of a product or service and the supplier’s customer. For a service provider, using standard terms is a cost-effective way of protecting your position, especially when dealing with numerous customers.

However, standard terms can only perform their function if they are effectively incorporated into the contract between the parties. Warehouse operators, hauliers and other logistics service providers need to ensure that the customer (and the owner of the goods, if not the same person) understands and agrees that the contractual relationship will be on the operator’s terms. Seeking to rely on terms only to find that they have never become part of the contract is an easy situation to find oneself in, especially when handling goods that are owned by someone other than your customer. It is always best to have your standard terms and conditions incorporated in writing, as proving that they have been agreed orally is not always straightforward.

It is important that hauliers who are looking to add warehousing services to their service portfolio have some form of storage contract in place as, surprisingly, goods held in a warehouse face a much wider range of potential causes of damage than goods in transit. Once in the warehouse, careless handling – whether manual or by forklift truck, damp, fire, pest or even the proximity of other goods which have the ability to contaminate products stored nearby, are all potential causes of product damage. The value of goods stored may be high and, unless the warehouse keeper has dealt with the issue of value in a storage contract, he may be liable for the full value of the goods in the event of a disaster. It is, therefore, important that within all Contracts the responsibilities of the customer and the logistics service provider are made clear.

Very often hauliers, warehouse operators and freight forwarders quote more than one set of terms when dealing with customers. They may, for example, have separate storage terms and haulage terms. If a problem arises – say, a dropped pallet in the yard – it is sometimes not clear which set of conditions applies to that situation, and sometimes the legal position may be that none do.

That’s why many companies in the warehousing and haulage sectors, use the UKWA Conditions of Contract as the basis for their standard terms and conditions. UKWA Conditions of Contract cover a broad range of services such as freight forwarding, haulage and, of course, warehousing. By using UKWA’s Conditions our members do not have to prepare three different contracts to encompass these distinct areas of their business - one document is sufficient.

Seeking efficiency

Because most companies have a major percentage of their costs tied up in their supply chains, supply chain management - once seen as something of an add-on with no real bearing on a business’s ultimate success - has been elevated to a key board-level discipline, writes Roger Williams. And in the current economic climate, an optimised supply chain is now considered vital for any business hoping to avoid the jaws of a nasty recession.

The approach to supply chain optimisation has traditionally focused on one piece of the puzzle at a time. These can include sourcing goods and services strategically to strike a balance between lowest material and transportation costs; maintaining the right mix and location of factories and warehouses to serve customer markets; and, using traditional logistics techniques to maximise distribution efficiency. However, since the 1980s there has a been a sharp upturn in the number of companies that choose to outsource logistics and supply chain management functions to third party logistics service providers – or 3PLs. Typically, 3PLs specialise in integrated warehousing and transportation services that can be scaled and customised to a customer’s needs. The kind of service offered will be based on a client company’s own unique market conditions and the demands and delivery service requirements for the goods that company produces and sells.

In today’s price sensitive market, the need to drive cost out of the supply chain is often cited as a major reason for using third party logistics service providers. However, perhaps a better reason for engaging outside experts is the in-depth knowledge, flexibility and added value that a specialist contractor can provide. In short, as well as helping companies to achieve significant cost savings, a good 3PL will enable a business to enjoy shorter order cycles, better customer service and improved all-round business efficiency.

There is no question that an effectively managed supply chain can positively influence business performance and, if companies are going to succeed in an increasingly competitive and unpredictable environment, every link in the chain must operate at optimum efficiency. That’s why any company that finds its fixed logistics costs are having a negative impact on its balance sheet simply has to consider outsourcing to a 3PL.

What can 3PLs do for you?

What advantages should a company expect and look for when considering entering into a third party logistics agreement?

• A healthier balance sheet - switching to a 3PL removes the requirement for capital investment in warehouses, materials handling equipment and transport fleets, and the up-keep and maintenance of these assets allowing financial resources to be concentrated on other core business areas.

• Operational flexibility - a 3PL will have the resources to meet changing needs and the ability to respond quickly to changes in the market place.

• Cost savings - from economies of scale, more direct routing, additional expertise, stricter inventory control and, with improved technology, a reduction in emergency shipments at premium prices.

• Freedom to focus on core activities - a 3PL provider will help to develop a company's long-term strategy to improve customer services, reduce costs and improve efficiency leaving the company to concentrate on it what it does best.

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