When it comes to modern day logistics, speed and flexibility are of the essence.Continued growth in e-commerce and consumer demands for ever more convenient ways to receive – and return – online purchases have meant retailers and their logistics partners needing to adapt. Elizabeth Selby, partner at Bexley Beaumont Limited takes a look at warehousing contracts. Elizabeth will deliver a short, informative talk on warehousing contracts at our in-person event on 21st March, Tuesday in London.
Faster deliveries mean retailers having distribution hubs closer to their customers. Instead of warehouses based out of town and near major transport routes, the new focus is on having infrastructure right in the heart of major conurbations. However, just as the physical facilities change, so too should the legal framework which regulates them.
To be clear, I’m referring not to the law itself but to the commercial contracts that document the relationship between logistics partners and retailers.
It might surprise some readers to learn that the laws which govern contract formation (whether in the logistics industry or otherwise) have actually been in place for centuries, despite the vast economic and industrial changes since they were introduced.
The same laws also apply regardless of whether the warehouses are in or outside an urban environment.
In contrast, contracts themselves are by their very nature more flexible, reflecting the individual requirements of a specific transaction. They include elements which simply aren’t dealt with by law. As practices and commercial necessities evolve, so too should the contracts which cover them.
The New Face of Contracts
As I know only too well from a decade of working on behalf of retailers and organisations involved in fulfilment, warehouse management contracts have historically been agreed for relatively long periods of time. Whilst contracts for parcel delivery might commonly be put in place between a retailer and logistics partner for anything between one and five years, those dealing with warehouse space typically run for a decade or more. However, one consequence of a move towards more agile, city-based warehousing operations is that contracts might now cover periods far shorter than at present, or at the very least include break options and more frequent strategic reviews to ensure that provision remains both relevant and cost effective.
Effective contracts should never be a prescriptive document made up of generic terms and conditions. Nor should they be solely regarded as something for the lawyers to attend to. I would suggest that, given they are intended to give structure to a commercial arrangement, they really need the input of a company’s commercial and operational stakeholders. After all, they know what they want to get out of any individual deal.
The alternative can be both costly and counterproductive. Contracts lacking clarity and commercial detail have the potential to result in disagreement, lengthy dispute and – ultimately – the breakdown of strategic relationships.
Taking the time and getting it right
Contracts which deal with more agile, city-based warehousing functions should naturally cover off local challenges which will differ to those relevant to the large depots found alongside many of the UK’s motorways. Yet the key considerations of both stay the same. What are the respective positions and responsibilities of the parties to a contract? What are the most relevant and commercially critical points which need to be included?
Moving into an urban environment might make a wholly-owned facility less practical for many brands as premium locations are already more congested, not to mention more expensive. As a result, even the larger retailers are likely to look to their fulfilment partners to provide the physical space, and not simply the warehouse operations.
Flexible warehousing capacity has been something that has always concerned retailers, regardless of size, and the move towards smaller distribution hubs will make the need for flexibility even greater. Contracts that provide flexibility of hub location, as well as capacity requirements, will be of benefit to retailers. However, flexibility without clear parameters is of no use to either party, and carefully drafted clauses will therefore be essential.
The move towards city hubs will require businesses to think about new issues at an early stage, not least of all planning laws, environmental controls and different staffing requirements. These are all areas where it is arguably critical for stakeholders to engage with their lawyers right from the start. Whilst this may feel like you are slowing down the process and increasing your costs, the end result should be the opposite, as it inevitably helps to avoid unwelcome surprises later down the road.
It is clear, therefore, that warehousing contracts – now more than ever – need careful consideration, with stakeholders and lawyers working closely together to ensure that the end result offers both certainty and flexibility. Thereafter, regularly reviewing your contracts – to make sure they are either fit for purpose or amended as necessary – allows you to remain competitive and not subject to terms which could leave you at a commercial disadvantage.