As any shipper who's been there will tell you, ending a logistics outsourcing arrangement is never easy. Even if it's an amicable split, the dissolution process is likely to be a bumpy road. If hard feelings develop, things can get downright ugly.
In my March column, I mentioned some of the difficulties that can arise when a client terminates an agreement with a logistics service provider (LSP) for cause. But early contract cancellations are just one potential minefield. Even a routine non-renewal of a contract can lead to trouble if the LSP believes the decision is based on personalities, not service.
What typically triggers this type of flare-up is a management change at one of the companies. Perhaps the client company has brought in a new logistics manager who feels more comfortable working with an LSP he/she has dealt with in the past. Or maybe one of the LSP's key people has changed jobs and the client decides to follow him or her to the new firm.
While these may be perfectly legitimate reasons for changing LSPs, managers who take this route should expect the worst. From a provider perspective, such a termination is akin to a husband's leaving his wife for another woman; and a number of LSPs have reacted accordingly. Unfortunately, the client sometimes gets caught in the middle.
One case in point involved two executives who left one LSP for another. Both left of their own accord, and neither had signed a non-compete agreement. They had, however, signed a confidentiality agreement.
Their former employer took them to court, claiming the knowledge they took with them about the company, its strategy, its plans, and its operations gave their new employer an unfair competitive advantage. The Supreme Court in that state agreed, and it prohibited the two executives from utilizing in their new positions much of the knowledge and information they had gained at their previous employer.
In this particular instance, no clients were dragged into the legal battle. But that's not unheard of. In another case, an executive who had been terminated from a national logistics provider decided to set up a new LSP with a manager who had recently resigned from the same firm. Again, neither had signed a non-compete agreement but both had executed a confidentiality document.
Their first sales call was to a client they had initially secured for their former employer. The logistics manager at the client company happened to be a friend of the two provider managers, and they had worked together in the past.
Since the contract was coming up for renewal, the logistics manager figured it would be easy enough to make a switch. He gave the LSP proper notice that his company would not be renewing the contract. But that didn't sit well with the incumbent provider, which suspected that its ex-employees may have had a hand in the termination. Without too much effort, it was able to confirm its hunch.
Armed with that knowledge, the provider filed a suit similar to the one cited above, but with a different twist: It named the client company's logistics manager in the suit as a co-conspirator.
He had done nothing wrong. He simply exercised his contractual right not to renew the arrangement. He had even given the provider as much notice as possible so it would have ample time to wind down the operation. Essentially, he was a victim of the provider's desire to punish its ex-employees.
Eventually, cooler heads prevailed, and the client was dropped from the suit. In the end, the plaintiff LSP reached a settlement with the two former employees, and they were able to begin the new operation.
While everyone should have the right to contract with whomever they choose, a client should be very cautious about letting personalities dictate its choice of LSP. Loyalty to a former associate could precipitate a bitter struggle that at best, disrupts its operations and at worst, lands it in court.
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