Dickon Court, Senior Associate, Foot Anstey, provides insight into the next big thing in warehousing and distribution.
What is the next big thing in warehousing and distribution? I keep hearing about robots. Amazon and Ocado have taken the headlines so far, but a change is coming throughout the retail and distribution industry. I have been hearing from retailers suggested that this is the emerging technology which will have the most significant impact on retail.
Make no mistake, these things are cool, but they may well also shake up the established options for dividing liability between the owner of goods and the warehouse operator.
The Status Quo
For me, one of the most surprising things about the warehousing and logistics industry is that in many situations a warehousing/distribution provider can lose, destroy or overlook goods without facing much sanction or liability.
It is of course open to you (and recommended!) to negotiate targets, KPIs and other specific clauses with your provider. However, the default position in the industry is that some form of the UK Warehousing Association Conditions of Contract is incorporated into your contract. Under those conditions the likelihood is that there is a limit of liability of £100 per tonne.
Are your goods worth more than £100 per tonne? What is the loss to your business if your goods don’t reach stores or customers in time (or at all)?
Yes, you can insure for these losses, but that comes at a cost. It is also possible (though it happens less frequently than I would expect) that you have negotiated a higher limit of liability with your provider. But if your agreement includes the UKWA Conditions then there is a blanket exclusion of loss of profits, wasted expenditure and similar losses. Even if your provider is negligent or deliberately defaults in their obligations, they are able to shrug their shoulders and give you £100 per tonne.
You can see why. The warehouse operator doesn’t control the value of the items they are storing. The UKWA Conditions put this limitation on liability front and centre. While that doesn’t necessarily mean it is a focus when you are setting up a new relationship, it is one factor of quite a few that together mean it is likely to be ‘reasonable’ if legally challenged under the Unfair Contract Terms Act. The case of Ofir Scheps, where a fine art storage company accidentally chucked a £600,000 sculpture in a skip, supports that analysis.
Generally warehousing providers will want to keep their customers. But the industry is under huge costs pressure and corners do often start to be cut. If you lose faith in your provider and mistakes start to be made it may well be a big deal to change. Is there an alternative in the right location, at the right price? How long will it take to transition? You are likely to have a long-term contract in place with the current provider and I have had to advise before that even if there are numerous failures and breaches by that provider, it may not be certain that you can terminate the contract, and you don’t want to go down the road of being sued for terminating improperly.
So, these terms and conditions can lead to horrible situations. Death by a thousand cuts, a breakdown in trust and confidence and mutual antagonism.
These robots then. They promote efficiency, they are faster and they are run on software that should know where everything is. In particular, they seem to make picking far more effective. I presume they will be programmed to pick from the goods which arrived first, reducing the risk that somewhere are items going past their best or their window. Incomplete pallets are understood. Nothing is left in the wrong slot. Human error is reduced.
As capital costs go down and new facilities open the near future will be a time of huge change. Warehousing providers will compete on the quality and reliability of their software and hardware, with human error and employment costs becoming a smaller factor.
If the robots are infallible the rationale for a limitation on liability for losses weakens. If a roboticised system loses or damages goods because of a failure of design, then is it more reasonable for the system provider to be more fully liable? In the meantime, make sure you have options and that you plan for the worst case scenario.
When it comes, if your warehousing provider offers to step outside of the comfort blanket of the UKWA Conditions and has the confidence to accept a larger share of the liability for losses and damage, then they are not only brave, but might be well worth looking at.
For more information please contact Dickon Court, Senior Associate