Transportation Law Article

June 3, 2010

Good deal gone bad
Is it worth suing when a provider breaks a promise?
By Marvin Huberman
Part One

The following story is based on real events between a real shipper and a real fourth-party logistics provider (4PL).

The shipper sought to outsource its logistics activities to a 4PL. The company wanted to share risk, increase flexibility, improve profitability and (most importantly) focus on its core business. So it hired a 4PL to manage all the third-party logistics providers (3PLs), carriers, forwarders, warehouse managers, Customs brokers and other providers in its global supply chain.

In its contract, the 4PL promised to manage contracts with multiple service providers, provide distinct services above and beyond those of a 3PL and add value on the technology side. What’s more, it promised to do so in a cost-effective way.

The ink was barely dry on the contract before the 4PL started to violate it. It insisted on using its own in-house 3PL services instead of retaining an external service provider better in tune with the shipper’s needs. By pushing business back into its parent company and affiliated corporations, it not only failed to maintain an arm’s-length relationship with providers—it was also falling short of its cost and service promises. The shipper’s costs increased, and many of its shipments were compromised.

When the shipper complained, the 4PL was unremorseful and hostile. The 4PL maintained it did nothing wrong and owed the shipper nothing. It was not willing to negotiate, mediate or arbitrate the dispute with the shipper.

Once the shock wore off and a sense of betrayal set in, the shipper became angry and decided to wage a legal battle with the 4PL.

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