3PL Contract Terms: Minimums, Term Length and Leaving

Some 3PLs set a minimum monthly bill or a minimum number of orders. If your activity falls below it, you pay the minimum anyway. For a seasonal brand, a slow summer month can cost as much as a busy one.

• Is there a monthly minimum, and is it a spend floor or an order floor?
• Does it change after the first months, or once you pass a volume?
• Does it apply while you are still moving inventory in?

At OC3PL, there are no order minimums, no volume thresholds and no long-term contract.

Many service agreements run for a fixed term and renew automatically unless you give notice inside a set window before the end date. Miss the window and you can be committed for another full term.

• How long is the first term?
• Does it renew automatically, and for how long each time?
• When does the notice window open and close, and how must notice be given: email, letter or a portal?
• Can either side end the agreement early, and what does that cost?

Put the renewal date and the notice deadline in your calendar the day you sign.

Ask for every fee that can appear on an invoice, in writing: receiving, storage, order and item fees, packaging, technology or integration fees, account management, kitting and other projects, returns, and any setup or onboarding charge. A fee that is not in the agreement is a fee you can question.

Check how storage is measured (per pallet, bin, shelf or cubic foot) and how often it is counted. Some providers charge a full month for a pallet that arrived near the end of it.

Check how rate changes work: how much notice you get, and whether you can leave without penalty if rates go up.

OC3PL invoices weekly. Storage is based on the space you use and pro-rated daily, and the monthly storage rate on your quote is there only so you can compare us with other providers. Value-added service rates are on your quote before you sign. See how OC3PL bills.

A 3PL holding your goods is acting as a warehouse, and warehouse law sets a baseline. Under Article 7 of the Uniform Commercial Code, a model law that states adopt into their own codes, a warehouse is liable for loss of or damage to goods caused by its failure to use the care a reasonably careful person would use in the same situation (UCC 7-204).

The same section lets the storage agreement limit the amount the warehouse has to pay, and lets you ask in writing for a higher limit, usually at a higher rate. Read the limit in your agreement and compare it with what your inventory is worth.

• What is the liability limit, and is it per unit, per pound or per shipment?
• What does it cover: loss, damage, mispicks, shrink?
• Do you need your own insurance for inventory in storage?
• How are counting differences found, reported and settled?

The same part of the UCC gives a warehouse a lien on the goods it stores for its storage, labor and related charges (UCC 7-209), and lets it ask a person claiming goods covered by a warehouse receipt to pay that lien before the goods are handed over (UCC 7-403). In practice: settle disputed invoices early and in writing, well before the trucks are booked.

• How much notice does the agreement require to leave?
• Are there exit, removal or pallet-out fees on the final invoice?
• How quickly will inventory be released, and who books and pays for the trucks?
• Will you get a final count by SKU, and how are differences settled?
• Will they hand back your data: order history, inventory records and SKU files?

For the practical side of a move, read how to switch 3PLs without missing orders.

Promises about accuracy, ship times and receiving belong in the agreement as service levels, with how each one is measured and what happens when one is missed. A promise that only lives in a sales deck is not one you can enforce. What is a 3PL SLA? explains the usual clauses.

1. First term, renewal and the notice deadline, in your calendar.
2. Every fee that can appear on an invoice, in writing.
3. Any minimum spend or order floor, and when it applies.
4. How storage is measured and how often it is counted.
5. How rate changes are announced, and your options if rates rise.
6. The liability limit for lost or damaged goods, and whether you need your own insurance.
7. Service levels, how each is measured, and the remedy when one is missed.
8. Exit: notice, final invoice, inventory release, final count and data return.
9. Your attorney’s review before you sign.