Who is this article intended for?
This article series is designed for junior lawyers and commercial teams working with contracts. It offers a foundational overview of business agreements, highlighting their importance and key legal considerations. Whether you’re new to law or supporting your commercial colleagues, this series of articles helps simplify the complexities of commercial contracts.
Why you need a logistics agreement for logistics services?
A logistics agreement is a type of services agreement that typically covers the transportation and/or warehousing of goods. It may also include a range of related services such as delivery route planning (particularly for deliveries to end customers), ecommerce order fulfilment, handling and reworking of returned products, label and artwork printing and customs clearance for imports and exports. Because the services provided under logistics agreements are often business critical, any issues with those services can significantly disrupt the customer’s operations.
Most logistics companies prefer to use their own standard terms and conditions, often based on industry standard terms issued by bodies such as the Road Haulage Association, the British International Freight Association or the UK Warehousing Association. Understandably, the industry standard terms strongly favour the logistics companies, with low limits on their liability and assorted warranties and indemnities being required from the customers. As a result, they provide little protection for customers.
However, if the customer’s logistics needs are substantial then logistics companies may be open to consider amendments to their template contract or to contract using an agreement drafted by the customer.
What are the differences between a logistics agreement and other services agreements?
Many provisions of logistics agreements will be the same as other services agreements you might come across, but logistics agreements also include several unique considerations, especially in large-scale arrangements. Key differences include:
- Term – logistics agreements often run for 3 to 5 years due to the significant time, effort and cost involved in setting up the new arrangement and it can be operationally difficult to quickly change logistics company. For this reason, termination rights also need to be carefully considered since immediate rights of termination may not be useful in practice.
- Investment – these agreements may require substantial upfront investment by the logistic companies in warehouse space, vehicles or equipment. The agreement should clearly state who will cover these costs and what happens if the agreement ends early.
- Charging structure – the fee mechanism in a logistics arrangement can take different forms (ranging from fixed rates to open book cost plus a management fee arrangements). Different parts of the services may use different models, so clarity on the charging mechanism and control of costs are crucial.
- Payment terms – logistics services often involve high value recurring costs (e.g. rent, salaries, fuel and energy). As a result, logistics companies are often reluctant to agree to extended payment terms for their customers.
- Risk – the logistics company should be responsible for the customer’s goods while they are in its possession but will often seek to severely limit their responsibility and liability for any loss or damage to those goods (e.g. only accepting responsibility when they are negligent and setting low limits on their liability).
- Liens – in common law, a logistics company is likely to have a lien over their customer’s goods (i.e. a right to retain possession of the goods it’s holding) until it’s paid for its services. If you’re the customer, you should resist any express lien in the logistics agreement and seek an exclusion of liens.
- Service levels – comprehensive, service specific service levels are essential. Breaches of the service levels should trigger remedies for the customer, depending on the seriousness of the breach. The remedies may include service credits, emergency meetings to agree and implement remedial plans or even termination.
- Limitation of liability – logistics companies usually impose strict limits on their liability, often based on industry standard terms (e.g. £1,300/tonne in the Road Haulage Association terms or £100/tonne in the UK Warehousing Association terms, in relation to loss or damage to the goods). Negotiation may be possible, but logistics companies are rarely generous with limits on their liability.
- TUPE – given that there is often a sizeable, dedicated workforce involved in a material logistics arrangement (possibly on both supplier and customer sides), TUPE may be a real risk at the start and end of the agreement.
- Data protection – if the logistics company interacts directly with end customers (e.g. making deliveries), personal data handling must comply with data protection law.
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Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.
