Comprehension of 3PL Warehouse Insurance and Liability

You know how important it is to preserve your inventory as a manufacturer or supplier. If you choose a pick and pack warehouse service to hold your goods, you're essentially giving that protection to someone else. You are not alone if the notion of someone else managing your inventory makes you nervous. You might also be asking yourself the following questions:

• Is my warehouse provider's liability insurance up to date?

• Can you tell me exactly what liability insurance covers?

• How would my inventory be valued if it was lost or damaged?

• As a supplier or manufacturer, what can I do to reduce risk?

All of these are reasonable inquiries. You should ideally question them before you start working with a third-party logistics (3PL) provider. But don't worry if you already work with a warehouse company. Asking these questions and putting your mind at ease is never too late. Here’s everything you need to know about 3PL warehouse insurance and liability

What is A 3PL Provider Accountable for In Terms of Warehousing Liability?

Most 3PL warehousing providers are solely accountable for their facilities, equipment, and employees in the logistics business. This is standard procedure according to the International Warehouse Logistics Association's rules (IWLA). 

So, if a hurricane pulls down a section of the roof, the 3PL is responsible for repairing it and relocating merchandise while it is being repaired. The same is true for a broken forklift or an injured employee; it is the 3PL provider's job to take care of these issues in order to fulfill the contract's obligations.

Any faults made by the 3PL provider must be corrected by the provider. 

• Shipping the incorrect product, for example. If the erroneous product is dispatched, the 3PL will replace it with the proper one and return the improperly supplied goods to inventory.
• Damage occurs as a result of incorrect product loading. If the 3PL's associates fail to properly load products for shipment and damage occurs, the 3PL may be held accountable under the contract's terms. In contrast, if damage happens after products have been correctly loaded and signed for by the driver, the 3PL will not be held liable. Loading jobs are frequently photographed by associates to ensure that the job was completed appropriately.
• Damaged product due to improper product handling. If a product is damaged during handling (e.g., placing or removing products from racks), the 3PL will be held liable according to the contract's terms.

Types of Insurance in Warehousing 

When it comes to products, however, the 3PL is not responsible for damage caused by “acts of God” (such as the hurricane mentioned earlier) and will normally have limited liability coverage for all other types of product damage, with the exact restrictions clearly outlined in your contract. 

Most of the time, the 3PL is financially responsible for product damage or deterioration up to a particular (capped) sum. The customer and its insurance coverage will be responsible for the majority of the liability.

To guard against losses, a 3PL supplier must carry insurance. The following are three categories of goods protection:

Warehouse Legal Liability 

Warehouse Legal Liability protects your merchandise if it is damaged in a 3PL warehouse for which they are liable. While storing your merchandise, the 3PL is expected to provide reasonable care. Warehouse owners and operators should treat your goods with the same care as a "prudent individual" would. In general, this means that operators should exercise caution when storing your items and take necessary precautions to protect your inventory.

Business Interruptions

Natural catastrophes and other incidents that hinder the 3PL company from conducting business are covered under Business Interruptions. This insurance only covers the costs of doing business while the company was closed. It does not cover merchandise stored in the warehouse.

This goes beyond property insurance in that it covers the earnings lost as a result of a loss of business rather than merely the price of fixing the property. Also, this type of insurance only covers the warehouse provider, not the customers who have their products stored there.

Transportation 

Transportation, which covers the safe movement of products and compensates the shipper and/or 3PL provider in the event of negligence. As a client, you may want to consider purchasing insurance that will protect your products in these situations.

In the 3PL Contract, Terms are Established

In the contract you sign with your 3PL, the particular levels of liability and limitations will be spelled out in detail. This contract should cover every imaginable circumstance that could impact your inventory, and precisely specify the financial responsibilities of each party in the event of loss, to avoid disagreement and finger-pointing. 

Furthermore, if your 3PL is providing a higher level of care than what its insurance policy describes as "appropriate," you must ensure that the 3PL is financially capable of covering what it has agreed to.

The terms of a 3PL contract, like almost everything else in a 3PL deal, are changeable between you and your 3PL partner.

Summing It Up: It’s Time for The Right Warehouse Management System

Warehoused goods are vulnerable to fire, water, and other disasters. While one of the reasons you store products in a warehouse is to safeguard them from theft, using 3PL partners opens the possibility to theft and inventory tracking errors if they don't have the correct warehouse management system (WMS) or inventory management system (IMS) in place.