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Who’s Liable for What in a 3PL Relationship? – Part 1: Warehouse Liability

May 27, 2020 Published by

storing items in a warehouse

In the world of business relationships, liability often lies in murky waters. For the fields of logistics and fulfillment, it can be especially tough to determine who is liable for what with so many different parties involved. As a result, it’s important to understand and establish clear responsibilities for each party involved in a 3PL partnership.

Third party logistics (3PL) companies often run into issues with liability as they are responsible for the safe transportation of a wide range of products. We’ll list the responsibilities for all parties in a 3PL relationship at each logistical stage from warehousing to transport in order to establish clear liability.

First, it’s necessary to comprehend how liability is distributed before a product even leaves the warehouse.

Warehouse Liability: 3PL Provider Responsibilities

In the logistics industry, it’s generally accepted that 3PL warehousing providers are liable for their own storage facilities, equipment, and employees. For example, if you warehoused products as a 3PL, and an earthquake damaged the east side of the building, you would be liable for repairing the damage and storing the products somewhere else while repairs occurred. In addition, the 3PL provider is also responsible for correcting any errors it makes during order fulfillment. Examples of this include:

Shipping the wrong product: If the wrong product is shipped, a 3PL must ship out the correct product and return any incorrectly-shipped product back to inventory. Investing in a good warehouse management system can reduce the risk of this happening.
Incorrect handling or loading of products resulting in damage: If warehouse employees incorrectly stow products and damage occurs as a result, 3PLs could be held liable (depending on the terms of their service contract).

Warehousing Liability: 3PL Client Responsibilities

Although a 3PL provider must protect a client’s inventory, these products are ultimately the owner’s responsibility.

When damage to products occurs, the 3PL usually covers a portion of the cost via some form of limited liability insurance, while the customer’s insurance covers the replacement cost. If a 3PL client would like to have product replacement insurance apply to the goods warehoused by their 3PL, they need add a rider to their insurance policy that lists their 3PL partner’s warehouse as a storage facility.

As you can see, both parties are not without their own share of risk and responsibility. We’ve covered a lot of material related to 3PL liability so far, but we’re still not done. Goods don’t just sit in a warehouse forever – they must be transported to paying customers. The next part in our series will cover liability during transport.