With an ever-increasing need for efficiency, alternative routes to market and access to new geographies, the life sciences industry is in the midst of an accelerated supply chain transformation. Market participants would be remiss not to keep in mind the warehousing and logistics processes fundamental to such transformation.
What is warehousing?
Warehousing constitutes a critical step in a business’s supply chain and refers to the process of storing physical goods in a warehouse (dedicated or shared) or other storage facility before they are sold or further distributed.
Whilst warehousing services can strictly refer to the provision of storage space, many industry providers are likely to provide a more expansive storage and distribution service. As such, governing contracts may cover:
- Storage of goods
- Picking and packing
- Order fulfilment processes
- Transport logistics
Reducing the risks
Warehousing plays a pivotal role in the overall supply chain of pharmaceuticals and can greatly affect the final product to its advantage or detriment. When handling pharmaceuticals, the nature and lifespan of the products warrants the following considerations:
- Temperature control throughout the storage, packaging, transportation and delivery stages
- Speed of service
- Transport handling, including mitigation of theft, spoilage and contamination risks
- Customs clearance, especially in territories with complex regulatory requirements
Pharmaceutical companies rely heavily on the smooth execution of these processes, and face a multitude of risks when entrusting their products to third party service providers. In order to mitigate such risks, the process is often closely monitored.
For example, the Medicines and Healthcare Products Regulatory Agency (MHRA) regulates the standards and licencing for the manufacture, assembly and wholesale distribution of medicinal products under UK and EU legislation.
Businesses wishing to participate in the manufacture, transport and/or storage of medicinal products for human or veterinary use may be required to procure process licences from the MHRA that capture both customers and suppliers of warehousing services.
Upon application for a licence, the MHRA will conduct inspections both at the outset and at regular intervals to ensure any manufacturing or distribution sites comply with the good practice standards.
Distribution sites must ensure compliance with good distribution practice (GDP), ensuring as a minimum “that medicines are obtained from the licensed supply chain and are consistently stored, transported and handled under suitable conditions, as required by the marketing authorisation or product specification”.
Standard contract terms
Given the high risk levels inherent within global pharmaceutical logistics, hauliers, carriers and other logistics service providers generally seek to limit their potential liability where something goes wrong during the warehousing and distribution processes.
For context, parties engaged in the provision and utilisation of logistics services typically enter into contractual arrangements based on terms and conditions recommended by reputable industry bodies, including:
- The UK Warehousing Association (UKWA), whose Conditions of Contract may be used by members to inform warehouse arrangements between the service provider and customer
- The Road Haulage Association (RHA), whose Conditions of Carriage 2020 may be used by members to inform contractual arrangements between carriers and customers
While such industry standard conditions generally adopt a pro-supplier stance in relation to liability where products are lost or damaged during the provision of the services, the following terms are typically excluded:
- The supplier’s liability for indirect or consequential losses
- Any loss of profit or revenue
- Liability for any lost or damaged products (or this is typically limited by a cap of £X per tonne of product replacement value)
Pharmaceutical businesses seeking to incorporate these standard terms should remain cognisant of how they may apply within their specific circumstances, and negotiate edits to such terms as appropriate. For example, is it appropriate to agree to a liability cap calculated with reference to product weight for the goods in question, which are likely to have a higher value to mass ratio than those in other industries.
Commercial parties to a warehousing and logistics arrangement are not governed solely by their contractual relationship. The Convention on the Contract for the International Carriage of Goods by Road (CMR), for example, establishes a framework for liability onto carriers which cannot be contracted out of for international carriage of goods for damage, loss or delay.
The above clearly sets out the need for parties to carefully consider the negotiation and drafting of warehousing and/or logistics arrangements even where the margins may be low for the service provider.