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​Critical Mistakes to Avoid in Your Logistics Services Contract

Posted by Ann Christopher


Logistics helps your product get exactly where you need it to when you need it. A solid logistics services contract delivers this same assurance to your business partnership.

A well-built contract protects both parties legally by defining which logistics scenarios will trigger which actions––a failsafe flowchart of directionality, financial responsibility, and legal assumptions which eliminate uncertainty.

This doesn't mean all contracts are equally dependable, however: there are a number of pitfalls that can cause serious headaches or even financial loss if they aren't addressed in either an initial contract or a negotiation period.

Here are 4 of the most common mistakes made when creating logistics services contracts, as well as the best ways to avoid them in your logistics partnerships:

1. Conflating transportation and warehousing duties.

Your warehouse team and your transport team may make a dynamic duo within your logistics workflow, but that doesn't mean they should be treated as a single entity. Extenuating circumstances for a truck are entirely different than those a warehouse might experience––making contingency directions and value-added pricing charts for one side unhelpful and inappropriate for the other.

It might seem counter-intuitive to bring more paperwork into an already highly analyzed collaboration, but the first time you have a transport or warehouse-specific problem, you'll appreciate the efficiency this two-pronged approach brings to the table.

Avoid it by: Draw up entirely separate agreements for your transportation needs and your warehousing needs, even if the same 3PL is assisting with both. The employees and facilities involved with each will need clear instructions regarding expectations and emergencies, and you'll find clarity is hard to achieve when there are pages of other terms and regulations to sift through every time a reference is needed.

2. Failing to establish minimum acceptable parameters.

Goals are laudable in every step of business (particularly in logistics), but you need to establish a floor for those goals. Setting baselines for metrics allows a company to closely monitor if logistics performance is within tolerable levels. This is much better than discovering from after-the-fact analysis reports your metrics have dipped below your goals.

Avoid it by: Discuss your ideal capacity with your 3PL in clear, direct terms and work with them to compromise on an ideal number for both your expectations and their capabilities. Stick to hard and fast numbers, percentages, and provable metrics to avoid "fuzzy" boundaries that could lead to legal action.

3. Not establishing liability scenarios.

The time to figure out the next step toward repairing and rebuilding isn't after disaster strikes. If your contract fails to outline who is responsible for events such as warehouse fires or natural disasters, you'll sacrifice precious time and income as all parties scramble to pick up the proverbial pieces and avoid legal and financial burdens.

Avoid it by: Identify and establish liability standards consistent with what is identified by law and within parameters of applicable insurance. Also, the parties should have a clear understanding as to whose insurance will respond under what circumstances.


4. Using non-specific terminology and not emphasizing clarity.

Contracts are all about compromise in business partnerships, but your relationship with your 3PL needs more clarification than most. 3PLs are responsible for shipping activities and actions that determine if your company can run efficiently or not, and to this end defined, specific terms are in your best interests. Traditional "legalese" won't cut it here––you'll need to create descriptions and legal narratives from scratch to avoid financially damaging misunderstandings.

Avoid it by: Spell out exactly what you expect in your logistics services contract, as well as clear repercussions if your logistics partner is failing to meet those standards. Lay out a rough plan for scalability, if appropriate, so that your 3PL understands your volume demands may increase in the future. However, it is important that these specifics and standards are tied to the business profile as presented by you. A 3PL can be most effective and efficient when operating in accordance with the profile and data that you have provided. Forecasting is crucial!

These misunderstandings might seem small at the moment, but if disaster strikes, they could amount to millions of dollars worth of damages, and a severely negative impact on your brand.

Don't take chances with the core of your business: it is best to make sure your logistics services contracts are created mindfully and reflect the specific policies and liabilities likely to occur in your industry and business.

Food, beverage, pharmaceuticals, and consumer products will all have very different levels of expectations, so it's up to you to apply your experience to these best practices to create the right contract fit.

Ready for expert advice in executing your 3PL contract? Our free eBook will take you through the next important steps and help you put your logistics needs in the most experienced hands.

Now that you're more confident in your contracts, you'll start off on the right foot with your new 3PL company, ensuring a successful and prosperous partnership with every pick, pull, package, and shipment. Get your 3PL Contract Best Practices guide here.



Ann Christopher

Written by Ann Christopher

Ann Christopher is considered one of the country's leading authorities on warehouse law and has served as a speaker for the American Bar Association, Transportation Lawyers Association, IWLA, Southeastern Warehouse Association, and Texas Warehouse Association. Having worked for the EPA in a past life, she is also very focused on regulatory compliance.


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