Recently, a fair trade issue has been raised in connection with the logistics costs. A vendor ships loads of goods to the distribution center, which stores and sorts out the goods until needed by the retail location and ships the proper quantity. It i...
Recently, a fair trade issue has been raised in connection with the logistics costs. A vendor ships loads of goods to the distribution center, which stores and sorts out the goods until needed by the retail location and ships the proper quantity. It is a widespread commercial practice that the vendor is fully or partly responsible for the logistics costs from the distribution center to the retail location. Some has argued that, as it is unfair to impose the logistics cost from the distribution center to the retail location entirely or partly on the vendors, the distributor should fully pay the logistics cost from the distribution center to the retail stores. Thus, a regulatory debates regarding this matter are made among academics, practitioners and government regulators. The argument that the distributor should pay the logistics cost from the distribution center to the retail stores has no statutory ground. According to contract and commercial laws, a debtor should perform its obligation at the principal office or individual retail store of the creditor. Therefore, the present commercial practice is following the basic legal principles of contract and commercial laws. Without adoption of regulation or statute superseding the basic contractual principles, such approach should be avoided that the distributor should pay the logistics costs from its distribution center to its individual retail store. Furthermore, the distributor-should-pay approach is not economically proper. It may cause unreasonable discrimination among the vendors and undermine significantly the incentive to increase socially desirable investment by building the distribution center. Consequently, it is not supported by the legal principles and even may generate much of social inefficiencies, which will eventually lead to consumer harm. For these reasons, imposing the logistics cost on the distributor without adequate contractual interpretation should be reconsidered. Rather, the regulation on the logistics cost should be structured based on the basic legal principles of contract or commercial law and provide various measures to safeguard fairness and transparency of the contract negotiation between the vendor and distributor.