The most critical issues related to contracts regarding the performance of integrated logistics services concern inventory shortages. Technically speaking “shortage” means the physical loss of one or more goods that as a consequence results in an economic loss. The less contractually regulated the warehouse movements are, the greater the damage may be. The key words are “physical inventory” and “book inventory”. When the two do not coincide or, in any case, the gap between the two is very wide, the logistics operators are made liable by their clients and are exposed to payment demands that can be high.
Why do shortages occur? In the most simple cases because of a mere non-fulfilment by the logistics operator due to negligence or carelessness, easily explainable in legal terms as breach of the contractual obligations undertaken by the contractor; but things get more complex when the liability arising from damage is less clear and manifests itself in complex operational mechanisms, of a more practical rather than legal nature. The possible liability of the logistics operator can be ascertained even if there is an (apparently) impeccable trackability system in which:
(a) the warehouse has an efficient software;
(b) the goods are labelled through the bar code system;
(c) the goods entering and leaving the warehouse are recorded in pre-bills and then in transport documents;
(d) the lists of goods are ticked by staff when picked.
When the logistics operator that has been made accountable for shortages provides documentary evidence of such operations, even though the shortage is actually suffered by the client, it is there technically but it does not exist! The correct software tracking of the goods leaving the warehouse does not necessarily mean the correct management of the handled stocks.
Therefore, it is not correct to limit any ascertainment of contractual liability to the verification of the warehouse software shared by the parties, since the fact that there is a correspondence between what is tracked through the bar code and what the contractor lists in the pre-bills and is then documented by the transport documents is not relevant.
For instance, irregularities may occur in the physical picking process of the goods and their assembling for shipping to distribution centres. In such case, only the physical inventory constitutes the true and unavoidable data to which to compare the results of the virtual/book inventory.
In such perspective, the most effective preventive safeguard is that of writing in the contract that the parties undertake to carry out checks in joint consultation at short intervals between the data of the physical inventory and those of the book inventory through an agreed procedure that should be well regulated both from a legal and operational point of view.
Only specific contractual clauses incorporated in the formats signed by the parties can offer a concrete protection tool and avoid that the dispute is brought to court with all related issues especially with regard to the burden of proof.
But this is a different story that deserves to be told separately …………
(Bologna office – Barbara Michini – tel: 0039 (0)51 2750020)
