Road and Road Freight Logistics in Australia is a $52.8 billion dollar industry, growing at a rate of 2.9% annually according to IBISWorld. The industry dominates the non-bulk freight market, competing alongside with rail, water and air freight industries. There are a number of key players in the Road and Road Freight industry (R&RF) including manufacturers, distributors, wholesalers and businesses.
With increasing fuel prices and mounting pressure from other transport industries, R&RF stakeholders now realise the benefits of reviewing their distribution contracts and capitalising efficiencies early-on, as well as negotiating supply chain arrangements rather than accepting standard form templates. Reviewing and negotiating tailored contracts can not only deliver long-term savings but also can protect your logistics company. Here are two issues to take into consideration before signing the dotted line on your next logistics contract:
Distinguishing Between Outsourcing Arrangements (3PL v 4PL)
First Party Logistics (1PL) are companies that manage their own logistics activities. Second Party Logistics (2PL) are companies that provide their own supply distribution assets such as trucks and warehousing. Both these two arrangements are often straight forward and managed internally. Agreements for outsourced 3PL and 4PL arrangements can be more complex, particularly when services span across a number of vertically integrated industries such as transport, distribution and warehousing. Make sure you understand the differences between 3PL and 4PL service providers and your contract is tailored to the service you are offering.
Third Party Logistics (3PL providers) are businesses that specialise in the supply chain process. To improve efficiencies, companies with logistics operations often outsource the function to a specialised company and become a third party to the contract (and hence the 3 in 3PL). The Third Party Logistics company often bundles in services such as freight forwarding and inventory management. Common third-party logistic providers are freight forwarders and courier companies.
In 4PL arrangements, 4PL are separate entities often established as joint-ventures that act between the client and multiple logistics companies. 4PLs are commonly referred to as Lead Logistic Providers as they manage all aspects of a client’s supply chain. By providing a full supply chain solution, they act as a single interface to connect the company with numerous logistic providers.
Depending on whether your company is in a 3PL or 4PL arrangement, this will determine the type of contract you will need and the final contract terms. Contract terms that vary include key performance indicators (KPIs) and industry benchmarks.
In the next five years, the Australian road freight industry will likely continue to experience difficulties with growing vehicle size restrictions on roads, particularly in metropolitan areas. Moreover, continuing reform will take place tackling the issues of speed limits, the safety of vehicles, driver fatigue and urban amenity issues (such as noise and emissions). The National Heavy Vehicle Regulator (NHVR) has been a key player in driving reform.
As the industry is constantly undergoing reform, it is crucial to be on top of legislative and regulatory changes including the ‘Safe Roads’ legislation (the Road Safety Remuneration Bill), the Work Act 2009, the Intelligent Access Program and the Independent Contractors Act 2006. Any contracts, outsourcing tenders or arrangements that are drafted should take into account these updates and ensure they comply with the existing legal framework.
The R&RF industry in Australia will continue to enjoy strong demand and growth over the next five years. The outsourcing of supply and transport management tasks to 3PL and 4PL will continue to increase by companies looking to capitalise on efficiencies, presenting performance risks that should be addressed in supply agreements. If you are entering an outsourced transport or logistics agreement or need a review of your operating, leasing or distribution arrangements, get in touch with our commercial lawyers today.