BY CLIFFORD F. LYNCH
fastlane
Breaking up (with an LSP)
is hard to do: Part II
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.
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider of logistics management advisory services, and author of Logistics Outsourcing –
A Management Guide and co-author of The Role of Transportation in the
Supply Chain. He can be reached at cliff@cflynch.com.
