As the COVID-19 outbreak continues to spread across the globe and with businesses being threatened by lockdowns and curfews, logistics remains one of the less affected industries. Changes in customers’ habits in the new normal, coupled with the exponential growth of online sales and deliveries, are playing a big role in the positive trend shown by logistics in the last months, as the increasing demand for storage, handling and transportation of goods shows no sign of stopping. According to the EU Commission Report on Logistics in the EU and multimodal transport in the new TEN-T corridors (2016), logistics is booming, with a forecasted increase of 40% by 2040 (currently the sector already accounts for the 14% of EU GDP).
In a forthcoming series of articles, we will take a deep dive into three main drivers and legal solutions that in our view will dramatically boost logistics and supply chains in the years to come:
- EU policy initiatives and new regulations, and how they will affect the industry;
- the interplay between logistics and information technology, along with potential risks and drawbacks mainly in terms of data processing and system security; and
- outsourcing of logistics activities to third-party vendors from a contract drafting and negotiation standpoint.
Below is a brief introduction of all three topics.
EU policy initiatives and new regulations
As already outlined by the EU Commission White Paper Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system (COM (2011) 144 final), efficient electronic information exchange is key to optimising freight transport efficiency by simplifying administrative procedures, providing for cargo tracking and tracing, and optimising schedules and traffic flows. In this context, in 2015 the EU Commission set up an expert group on Digital Transport and Logistics (the Digital Transport and Logistics Forum (DLTF)), whose overarching objective is to improve digital interoperability in logistics and freight transport across Europe. The DLTF produced two valuable reports: Towards paperless transport within the EU and across its borders and Enabling organisations to reap the benefits of data sharing in logistics and supply chain.
Most importantly, on 15 July 2020 the EU Parliament and Council approved the EU Regulation 2020/1056 on electronic freight transport information, which will apply from 21 August 2024. The new regulation aims at encouraging the digitalisation of freight transport and logistics to reduce administrative costs, improve enforcement capabilities of competent authorities, and enhance the efficiency and sustainability of transport. Upcoming articles will include an overall analysis of this new piece of legislation and the main policy initiatives from the past years.
The marriage between logistics and information technology
Both on customers’ and providers’ sides, the interplay between logistics and information technology is becoming crucial in optimising the carriage and handling of goods.
In the Warehouse 4.0, connected shelves are able to autonomously organise their replenishment, planning is highly automated, automatic guided vehicles (AGV) interact with trucks, pallets and containers move in swarms, and employees provide added value by overseeing processes, training the machines and filling gaps in the machine-driven environment. Among the main benefits of interconnected logistics are updated information which mitigate risk of late delivery and shortages due to outdated information, real-time planning workflows, route and hub optimization, IoT interaction and integration with Industry 4.0 systems creating an overall IT environment which streamlines workflows and data sharing, but above all efficiency and cost savings.
However, such advantages bring about several risks and sensitive issues to be carefully managed both in terms of compliance and management. Correct processing and governance of personal data, data and database ownership, cybersecurity, the validity of e-documents exchanged through the supply chain, system interoperability, and contractual relationships with third-party IT vendors are among the most important matters to tackle. We will provide some insight on these matters in upcoming articles.
Good relationships with outsourcers
As the abovementioned 2016 EU Commission Report shows, firms often outsource logistics services to third-party vendors, and outsourced logistics amount to 16% of total global logistics activities. In this context, contractual setup between customers and vendors is essential to ensure a smooth and profitable outsourcing relationship and reduce the risks of future litigation.
Customers and vendors should then carefully draft and negotiate some crucial contractual clauses. For example:
- the deployment of advanced technologies may require tailored KPIs to measure vendor performance along with a bonus/malus mechanism;
- business continuity and disaster recovery plans become even more essential than in “analogic” supply chain environments;
- reporting and audits are key for overseeing ongoing outsourced processes;
- data ownership clauses protect valuable information;
- sub-contracting and offshoring help vendors reduce costs and enrich their offer without customer loses control; and
- insurance and liability clauses limit possible losses and damages.
In the upcoming articles we will guide you through some of the must-have clauses in logistic outsourcing agreements and how to tailor them to specific deals.