Contract Warehousing vs. Public Warehousing

If you choose public warehousing you pay only for the space and services you use, as you use them and there is no long-term commitment. Contract Warehousing involves a longer term commitment but the costs per unit will be less. Public warehousing is generally the better option initially, with progression to Contract Services as your product line becomes more established.

Contract warehouses like allow for normal business expansion and contraction in the most flexible, cost efficient way. The alternative is expensive short term and generally expensive leases or risky purchases of commercial property. A contract warehouse has the infrastructure and staff – again, expensive for companies to buy in and dispose of as business needs change.

Before contract warehousing was invented, all third parties warehousing was called public warehousing, and was based on a thirty-day agreement, comparable to using a common carrier.
Contract Warehousing differs from Public Warehousing in that it is typically a multi-year arrangement and it usually entails more aggressive facility start-up activities including facility selection, acquisition of equipment, and deployment of labor.

Contract warehouses will generally require a client to commit to a specific period of time (generally in years) for the services. Contracts may or may not require clients to purchase or subsidize storage and material-handling equipment. Fees for contract warehouses may be transaction and storage based, fixed, cost-plus, or any combination.