Paul Stewart Logistics Law

Logistics Law as Either Strategic or Tactical Planning…the Choice is Crucial

Having spent almost as much of my career on the business side of logistics as the legal, I continue to wonder at the lack of “pre-crisis” attention to legal issues by executives within supply chain management, especially when considering a multi-party 3PL project. The reader is best introduced to my topic within the context of considering legal advice as either tactical or strategic. It is tactical when decision makers minimally involve legal review in planning logistics projects, and later are deeply concerned with “how do we get out of this mess”, or “what were we thinking”. It is strategic when forward thinking executives recognize the evolving nature of logistics law, and always include legal review within strategic analysis as to both existing operations and contemplated new initiatives.

There are few industries wherein legal review is more compelling than the 3PL sector of logistics management. The law of logistics, and in particular third-party logistics, is always forming anew. 

The logistics industry has grown faster than the law supporting and forming around it, often leaving a void in the law, which courts are asked to fill. 

What we now know as the 3PL sector is little more than 20 years old. Prior to that time supply chain management was more simplistic, dyadic and surrounded by equally simple, well established legal concepts. By 2000, the U.S. 3PL gross revenue amounted to $50B, and today has grown to over $200B. All of these 3PL functions are mostly unregulated and have to be defined, both as business and legal concepts; but moreover, proper risk management and efficiency requires legal review within the context of each new project and the evolving law of logistics.

3PL functions, by definition, involve more than two parties, and often many more. Legal implications of 3PL transactions are geometric to the number of parties and separate functions involved in successfully managing any aspect of a supply chain. Easily, the greater majority of court decisions interpreting these relationships have been rendered within the past 20 years. But, as previously stated, the courts are considerably behind the formation of these relationships in defining and enforcing their real impact. New law is being formed every day in the logistics industry, and often to the financial and professional disappointment of those who fail to completely involve knowing legal analysis within their strategic plans.

The strategic planning process to which I make reference is much more than simple contract review, although my experience indicates that such an elementary process as mandatory contract review would be a good first step for some logistics companies. It becomes much more effective when experienced (logistics-specific) counsel is involved in the functional aspects of a planned initiative. Effective process design, with the assistance of counsel who is familiar with the many nuances of 3PL logistics management, will often not only avoid negative legal ramifications, but may also help design a more profitable initial process.

Scenario: Fortune 100 shipper wants to contract with 3PL for the purpose of managing both intermodal and truck transport of inbound widgets to distribution centers, warehousing of widgets while at DCs, and transport of widgets to retail stores. 3PL must contract with major rails, motor carriers, warehousing facility, and labor for all DC operations.

Too often, in later litigation, I see this scenario as having been approached by all parties as a tactical matter, whereby all legal aspects of anticipated operations are reviewed minimally, mostly by exchanging boilerplate contracts. Typically, the boilerplate contracts are drafted with inordinate focus on indemnity obligations and without any contemplation of the many relationships which shall follow. The more complex process of 3PL management will involve layers of providers, and often in combinations the courts have yet to consider. The duties, responsibilities and contractual relationships of all such parties are often beyond the scope of current law and cannot be properly addressed by traditional indemnity provisions, or the dated boilerplate contracts of the former dyadic relationships.

(Perspective for reader: The “Scenario” described above involves at least 5 separate providers/processes for each intermodal shipment (some regulated/some not); 4 for each truck shipment; minimum/maximum throughput requirements by shipper and warehouseman; reverse logistics considerations for all widgets; separate demurrage penalties for domestic and international equipment; rail and motor carrier limitations of liability (each different); and, information reporting requirements by all parties, not to mention JIT considerations and the impact of disclosure of confidential information and/or subcontracting of shipments outside the primary project requirements.)

No reflection intended on commercial officers or boiler plate contract drafters, but such a complex project is laden with logistics-law-specific issues which are typically outside their immediate approach to such a “tactical” review and proper preparation. By contrast, a strategic review will entail much more thorough sharing of information, review of each step of the process (in almost a flowchart manner); and, logistics-law-specific input to the ideal desired result, which focuses on improving intended outcomes, rather than a leverage battle over indemnity obligations, which are ill-designed to cover all parties.

Tactical emphasis on insurance and indemnity obligations usually results in sticky issues for potential protracted litigation. A thorough strategic review, involving a logistics law professional, will focus on creating more opportunity for success and a much more thorough understanding of how the project will be affected at all junctures by logistics law… which most surely is being pronounced newly by the courts each day.

Apologies if my approach to this topic seems in any manner to be solicitous. One cannot write on such a topic, as a logistics lawyer, without such inferences being drawn. My message is not intended as such, but only to share a perspective gained over 35 years of managing the results of both tactical and strategic approaches to legal review of logistics projects. The results are almost always dramatically different for all parties.

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