<< Back to all resources

Here’s what a good 3PL agreement should contain

Feb 14, 2025

When first entering the US market, many of our clients choose to engage a third-party logistics provider (or 3PL) to manage the fulfillment of customer orders.  As a result, it is common for us to be involved in helping our clients to structure 3PL agreements that best serve their needs.  Here’s what you should find in a good 3PL agreement.

  1. Clearly defined scope of services

The agreement should specify the exact services the 3PL will provide, such as warehousing, transportation, order fulfillment, and inventory management.  A well-defined scope prevents misunderstandings and sets clear expectations for both parties.

  1. Service level agreements (SLAs)

The agreement should contain SLAs.  SLAs outline the performance metrics the 3PL must meet, including delivery times, order accuracy, and inventory accuracy.  Clearly defined SLAs ensure accountability and provide a basis for measuring the 3PL’s performance.

  1. Clear pricing and payment terms

The 3PL’s pricing structure (including storage fees, handling fees, transportation costs, and any additional charges) should be clearly defined, with fully transparent pricing.  Payment terms should align with your company’s cash flow.

  1. Integrated technology systems

If applicable, the 3PL’s technology systems should integrate seamlessly with your own systems.  Effective data exchange and real-time visibility into inventory and shipments enhance operational efficiency.  A good 3PL agreement describes the technology systems that will be used and outlines how the two systems will interface.

  1. Clear liability and insurance provisions

The agreement should clearly define the liability each party holds in various scenarios, such as damage, loss, or delays.  The 3PL should be required to maintain adequate insurance coverage to goods in its custody.

  1. Flexibility and scalability

The terms should allow for flexibility in scaling operations, adjusting service requirements, or modifying terms as your business evolves.

  1. Contract duration and termination

The agreement should clearly define the length of the contract and the conditions under which either party can terminate the agreement.  Avoid contracts that lock you into extended periods, especially where SLAs do not adequately protect your interests.

  1. Compliance with legal and regulatory requirements

The 3PL should be contractually required to comply with all relevant laws and regulations, including customs, import/export laws, and industry-specific standards and to indemnify you if and when it fails to do so.

  1. Stock location and storage conditions

For 3PLs with multiple locations, the agreement should allow you to exercise control over where the stock will be stored.  In addition, you should have control over storage conditions for any goods that require special storage conditions (e.g., temperature-controlled storage or special security measures).

 

<< Back to all resources

Related articles:

Navigating the American love for checks

For UK businesses expanding into the US, there’s an unexpected financial relic to contend with: the paper check (or, to use the British spelling, the “cheque”).  While the UK has largely abandoned checks in favor of digital payments, they remain a common and sometimes...

What is a resale exemption certificate?

One of the many significant differences between UK VAT and US sales tax is that US sales tax is intended to be collected only from the final purchaser of a good or service. Because US sales tax cannot be reclaimed, the danger exists that the sales tax can become a...

What variations in business culture exist within the United States?

The United States is a heterogeneous country of diverse cultures, languages, and traditions. It is not surprising, therefore, that there are variations in business culture among regions. Although generalizations can be as misleading as they are informative, here are a...

Should your US employment agreement have a notice requirement?

Should your US employment agreement have a notice requirement? Employees in the UK are typically entitled to statutory and contractual notice prior to termination. Under Section 86 of the Employment Rights Act 1996, once an employee has been in employment for a month...

What is a US social security number?

A social security number (or “SSN”) is a nine-digit number issued to US citizens, permanent residents, and temporary (working) residents. It is the primary identifier for individuals, used by government agencies, private enterprises, and financial institutions. Only...

Should your US affiliate have the word “America” in its name?

When creating a US subsidiary or other affiliate, UK companies often include a geographic identifier in the name. Names like Acme USA Inc. or Acme US Inc. are common. Should you, however, include the word “America” in your US company name? The answer depends. To be...

Contrasting US-UK Business Culture

Despite a 5 to 8-hour time difference, the US is the UK’s largest export market. No doubt this is largely attributable to the shear size of the US market. But it is also a function of a similar language and familiar business culture. Despite the similarities, there...