ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. The Health & Personal Care Logistics Conference Spring Meeting 2015 Karyn A. Booth 3PL CONTRACTS: What are the Key Benefits, Terms and Negotiating Strategies for Shippers

2 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. Presentation Topics Benefits of 3PL Contracts 3PL Contracting Framework Key 3PL Contract Terms Contract Negotiating Tips for Shippers

3 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. Benefits of 3PL Contracts Achieve efficiencies in managing the logistics supply chain “One-stop shopping” to obtain integrated service offerings Cost savings, control and predictability Limitation of risk / liability Customization for specific commercial needs & requirements Clarity of performance expectations

4 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 3PL Contracting Framework Structure and terms of 3PL contracts may vary based on: geographic scope (domestic vs. international) types of services to be provided (transportation, logistics, customs) inclusion of subsidiaries and affiliates corporate objectives (e.g. uniformity in terms) corporate resources (e.g. contract administration) government regulation market conditions (capacity, demand, competitive landscape) contract term

5 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 3PL Contracting Framework Self-contained documents vs. multiple documents general terms modal specific terms No one-size-fits-all approach Contract structure can be developed to meet your business and service needs

6 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. Key Contract Terms: Scope of Services Clearly define the 3PL’s scope of services: types of service (e.g., transportation, brokerage, freight forwarding) geographic scope (e.g., interstate, intrastate, foreign, Canada/Mexico cross-border) include SOPs to clarify operational requirements exclusivity of provider Develop service requirements that promote efficiencies, reliability, and planning capacity needs / guarantees equipment availability and condition (tractors, trailers, containers, chassis, railcars) e-commerce / communication

7 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 3PL Performance Clarify 3PL performance expectations develop KPIs to measure 3PL performance (e.g. capacity, on-time deliveries, cargo loss/damage, etc.) some contracts include remedies for failure to meet KPIs (e.g. right to cure, termination option(s), financial penalties) Address specific service issues and concerns refused deliveries (notice, cargo disposition instructions, liability for storage or other assessorial charges) late deliveries (notice, expedited service, plant shut-downs) lack of capacity or rolled cargo for int’l ocean

8 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 3PL Use of Subcontractors Subcontractor/carrier selection and due diligence licensing; insurance; and safety fitness right to avoid carriers with poor safety or performance records truck issues: DOT safety rating and CSA 3PL responsibility to manage subcontractors’ performance 3PL liability for subcontractors’ failure to perform 3PL responsibility to pay subcontractors Waiver of cargo liens

9 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. Rates Rates may be “all-in” or itemized, depending on the services/modes of transportation and party preferences To promote rate stability, limit all rates and charges to those specified in the contract rate changes or additions should be mutually agreed and added to the contract be wary of incorporated tariffs and documents which can result in rate add-ons, surcharges, etc. ensure that the contract terms govern if there is a conflict between the contract and any bill of lading, tariff, etc.

10 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. Liability: Cargo Loss & Damage Different legal regimes may apply depending on the services (truck vs. ocean vs. air) 3PL may be responsible under the law or may contractually assume responsibility for cargo loss/damage Liability limits are common but negotiable (except for int’l air)  “package” definition may impact recovery  consider the value of goods and level of protection needed 3PL should carry cargo insurance to cover its liability risks Shipper will need insurance to cover risk above liability limits

11 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. Indemnity 3PL contracts typically require indemnification against liabilities, claims and damages resulting from the acts and performance of the other party Indemnity may cover: negligence contract breaches failure to comply with laws conduct of third parties attorneys’ fees Truck Issue: anti-indemnification statutes

12 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 12 Contract Negotiating Tips for Shippers Identify and prioritize your contracting objectives Prepare your own contract form tailored to your business objectives Consider a bidding process Look for ways to increase leverage (scope, affiliates, etc.) Work with the 3PL to help meet its business needs (e.g. better forecasting, communication, volume commitments, etc.) Avoid a “price-only” focus Encourage collaboration

13 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. THANK YOU! Karyn A. Booth