8 Things to Look for When Revisiting a Logistics Contract (10/14/24)

As your business needs change, the terms of your logistics supplier contract may need to change too. When revisiting your contract, here are 8 provisions to look for.

The process of selecting the right logistics provider can be a long one. There are myriad choices and even more promises about service levels and fees. After your business has taken the time to properly vet logistics candidates and chosen a partner, it may seem like the work of maintaining this relationship is over. However, it is vital to continue to revisit the contract for the duration of the time that it is active.

Regularly revisiting your logistics contracts will help ensure that the logistics provider is holding up their end of the bargain and allow you to identify gaps in service. It will also help you recognize ways you may need to amend the contract in the future.

As you review your contract, certain factors will aid in determining whether it is still the best fit for your business. From the language to the terms it promises to uphold, here are eight things to look for when reviewing a logistics contract:

• Service levels

• Storage parameters

• Scalability

• Staffing to meet demand

• Rates

• Incentives and penalties

• Obligations during special circumstances

• Unclear language

1. Service levels

One of the most important things a contract should do is break down its service levels. This includes factors such as how many days per week the provider operates, order processing timelines for both domestic and international shipments, how returns are processed, and error rates. When reviewing these, make sure the contract parameters still work for you. For example, if a supplier’s cut-off time for same-day processing is negatively impacting your sales, it may be time to renegotiate or look elsewhere.

2. Storage parameters

Warehouse operations are as vital to the supplier relationship as shipping is. The contract should state standards of storage, including obligations related to how long inventory is held and temperature standards. The latter is especially important if your business deals with a product — such as a perishable item — that relies on strict temperature guidelines. Have you recently begun selling a product that needs special storage conditions in the warehouse? Make sure your contract still protects it.

3. Scalability

If it has been a while since you last revisited your logistics contract, you will need to review it with an eye for scalability. Think of how your business has grown. For example, are you offering new products? Shipping to new territories? Seeing an uptick in demand for faster delivery? Measure your new standards of operating against the terms of the existing contract and look for places where improvement is needed.

4. Staffing to meet demand

Businesses that see demand surges around the holidays or on a seasonal basis rely on logistics providers that staff accordingly. In addition to relying on a logistics provider that can operate 365 days a year if needed, you need staffing in place both in the warehouse and on the ground to deliver customer satisfaction.

5. Rates

It may be time to talk to your logistics provider about rate adjustments. Rates can vary depending on capacity, fuel charges and other factors. If you have shopped around and seen competitive rates from other logistics providers, it may be time to negotiate a lower cost.

6. Incentives and penalties

In a perfect world, rates and service levels would go hand in hand when it comes to your logistics provider. The rate should reflect the level of service provided. Having a contract with incentives and penalties built-in is a smart insurance policy that helps guarantee this happens. A contract can include bonuses for performing better and penalties for failing to meet fulfillment standards, including timelines and inventory shrinkage. If your contract has no such language in it, it becomes harder to hold the logistics provider to the high standards you need them to meet so your business can thrive.

7. Obligations during special circumstances

The current COVID-19 pandemic has been challenging for the logistics industry. A global crisis such as this one is difficult to predict, so it might not be covered in your contract. Businesses affected by COVID-19 can identify how their logistics operations should use those lessons to ask for contract language that addresses obligations during emergencies and unforeseen incidents — local and global — that affect warehousing and shipping.

8. Unclear language

The only way to hold a logistics provider to the terms of a contract is to make sure those terms are clear. When reviewing your contract, look for vague or unclear language that leaves room for interpretation. Asking for clarification will result in a higher quality of service and a better mutual understanding of obligations.

Whether you are looking over a contract for the first time before signing it or reviewing terms with a logistics provider you’ve been working with for years, Resource Logistics Group can help you make sense of the language and negotiate pricing. To learn more and to set up a free benchmarking analysis, contact Resource Logistics Group.