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Third-Party Logistics (3PL)

Imagine you’ve been running a small clothing business out of your garage for the last two years; you’ve been screen printing your hoodies, processing orders, packing, and shipping them all with your small team. Demand is high, and you’re worried you can’t match it with your small operation.

You don‚Äôt know how shipping and logistics suddenly started eating up all your time ‚Äď after all, you only ever got into the business because of your love for your product! That’s where third-party logistics, or 3PL company, comes in to make your life easier.¬†

3PLs allow you to outsource your logistics processes to a separate company that manages part or all of the logistics process for you. They handle essential tasks like warehousing, inventory management, packing, shipping, and returns. 3PLs are a successful solution in the age of e-commerce because they allow you to return to making your products excellent, and put your products into the hands of professional companies whose sole purpose is to manage your logistics. Using a 3PL is a solution for both small and large companies; a recent and fairly cited study demonstrated that 86% of US-based Fortune 500 companies use 3PL providers for logistics and supply chain functions. 

You‚Äôll soon see below that there are many options to pick from if you‚Äôre looking to outsource your logistics ‚Äď you should grab a quote from our website to ensure you get pointed in the right direction.

In the rest of this article, we will explore the significance of third-party logistics and give you the info you need to ensure you make an informed decision. We’ll explore the concept, history, and best practices while highlighting some of our top recommended third-party logistic companies.

History of 3PLs

Third-party logistics is a relatively new concept in the grand scheme of global shipping compared to topics like drayage or intermodal shipping. People and companies have been outsourcing work for centuries, but the Council of Supply Chain Management Professionals traces the first use of the 3PL abbreviation back to the 1970s. 3PL was first used to describe intermodal marketing companies using transportation contracts ‚Äď before that, most transportation contracts only involved the shipper and the carrier. 3PL is aptly named due to the presence of three or more parties involved in transporting goods and freight.

The 3PL industry really took off in the 1990s with advancements in supply chain management software and enterprise resource planning systems. As e-commerce boomed, 3PLs started offering e-fulfillment and reverse logistics to meet the demands of online retailers and their customers. Today, leading 3PLs provide end-to-end solutions using warehouse management systems, transportation management systems, and freight audit tools to gain visibility into the supply chain and optimize costs.

Benefits of 3PL for your business

Outsourcing your logistics to a third-party logistics (3PL) provider is one of the smartest moves you can make for your business. It will save you time, money, and sanity and allow you to focus on what really matters ‚Äď growing your company. We‚Äôve included some more specific benefits that might suit your needs below:

  • Gain Valuable Expertise: Running a successful logistics operation requires knowledge and experience you likely don’t have (to no fault of your own). 3PLs specialize in managing inventory, shipping, warehousing, and fulfillment. They stay on top of the latest technologies and best practices, so you don’t have to. The smartest business move is to know when to tap into somebody else‚Äôs expertise.¬†
  • Reduce Costs: Owning and operating your own fleet of vehicles, managing a warehouse, and¬† employing a logistics team is expensive and unachievable for most small-to-mid sized businesses. 3PLs already have the infrastructure and resources in place, allowing them to handle your logistics at a lower cost. They can also leverage their size to negotiate better shipping rates and pass the savings on to you.
  • Improve Customer Service: Customers today expect fast, low-cost (or free!) shipping and hassle-free returns. Meeting those demands in-house requires significant time and money. 3PLs have optimized processes to get orders out the door and handle returns efficiently. Many popular companies also have experience with e-commerce fulfillment, allowing them to get up and running your online store seamlessly.¬†
  • Scale Quickly: If demand for your products suddenly spikes, the right 3PL should be able to scale its operations quickly to meet your needs. They can increase warehouse space, add more vehicles and staff, and make other changes fast to avoid backlogs or delays. With a 3PL supporting your logistics, you have the flexibility to scale your business without infrastructure limitations.
  • Reclaim Your Time: Outsourcing logistics may seem like relinquishing control, but with the right 3PL partner, you’ll gain peace of mind knowing your shipping and fulfillment are in good hands. Find a provider with experience in your industry and a track record of success. Get to know their services and fees to find the best match for your needs. Then, sit back and watch your business growth accelerate as you’re freed up to focus on the work you truly love.

Six Things to Look for in a 3PL Partner

When picking a 3PL partner, there are a few key things you’ll want to consider. Finding the right match can streamline your shipping and fulfillment, allowing you to focus on growing your business.

1. Technology and Automation

Look for a 3PL with tech that integrates easily with your systems. Things like automated order uploading, inventory management software, and shipping label printing can save you time and hassle. Some 3PLs even offer warehouse robotics and loT for maximum efficiency. Access to this kind of cutting-edge tech through a partner is a huge benefit, especially when it comes to having full visibility and control over your supply chain.

2. Global reach

If you ship internationally or aim to in the future, it‚Äôs crucial you find a 3PL with fulfillment centers around the world. They’ll have experience navigating customs and regulations in different countries and can also help you implement localized shipping options, like offering free shipping within a certain region.

3. Expertise

Outsourcing to industry pros means tapping into their knowledge and skills. An experienced 3PL should be able to answer any questions regarding best practices in logistics, packaging, warehousing, and distribution. Expertise manifests itself in the overall size of the 3PL, the company’s reach, and, ultimately, how they help their clients optimize logistics and cut costs.

4. Flexibility

Look for a 3PL that can scale with your business and give you room to grow at your own pace. As your shipping volume grows, they should be able to take on more of your logistics needs. A flexible 3PL allows you to increase stock and fulfillment when you need to scale, and allows you to distribute your inventory into warehouses and fulfillment centers in new states, regions, and countries.

5. Customer Service

Good customer service is a must; try to find a 3PL that reflects the mission and values of your own company. Some things to look for are 24/7 phone support and online chat services, quick response times, and a track record of good reviews. Customer service should be consistent on the backend when in communication with your business, and on the frontend with any customers your 3PL is shipping orders to. In the end, working with your 3PL should never feel like a waste of time. After all, their whole purpose is to save you time and money!

6. Fast Shipping

73% of shoppers expect affordable, fast deliveries. 44% of online shoppers who abandon their shopping carts do so because of shipping and handling costs. Look for a 3PL that is either consistent with their fulfillment times or always improving.

The 3PL Order Fulfillment Process

 

Step 1: Receiving Inventory Your 3PL will take delivery of your goods at one of their warehouses and verify the shipment details. They’ll ensure all items are accounted for before storing your inventory.
Step 2: Storing Goods Your 3PL will organize and store your inventory within their warehouse facility.

They use  warehouse management systems to keep track of where each product is located to enable fast retrieval. Your goods are kept in optimal conditions to prevent damage or expiration.

Step 3: Picking and Packing Orders When customers place orders on your website or marketplace, the details are sent to your 3PL. They retrieve the required items from storage‚ÄĒa process known as “picking”‚ÄĒand pack the orders, including any gift wrapping or promotional materials. The packed orders are then labeled for shipping.
Step 4: Shipping Orders The final step is handing off the packed and labeled orders to shipping carriers for delivery to your customers. Your 3PL can negotiate discounted rates with major carriers like UPS and FedEx to get you the best prices. Shipping speed is entirely up to your 3PL’s offerings and the customers’ preferences. They also handle any returns or exchanges to streamline the overall experience.

Pricing and Cost Considerations

The cost of 3PL services depends on the specific services you need and the volume of orders you ship. In general, you can expect to pay between 5-25% of your product cost. The good news for new and small businesses is that 3PLs often charge on a per-order basis, so you only pay for what you use. 

Other fees include:

  • Warehousing fees: The more space you need to store inventory, the higher the fees.
  • Fulfillment fees: Fees for picking, packing and shipping your orders. Usually a few dollars per order.
  • Value-added services: Things like kitting, labeling, and returns handling add to costs. Only pay for what you need.
  • Shipping rates: The 3PL can often negotiate lower carrier rates based on their volume, passing some savings to you.
  • Seasonal spikes: Fees may increase during busy seasons if you need extra resources. Plan ahead to keep costs down.
  • Added Costs: Look out for extra charges beyond the base pricing model. These may include fuel surcharges, handling/packaging fees, technology fees for using the 3PL’s software, receiving/putaway charges, and minimums or penalties. Make sure any additional fees are clearly spelled out in your contract.

Pricing Models

There are a few common ways 3PLs structure their pricing:

  • Per item: You pay a fixed fee for each item processed, stored or shipped. This can be good for high-volume, low-cost goods.
  • Per order: A flat fee is charged for each order fulfilled, regardless of items or complexity. This may suit companies with a high number of small orders.
  • Percentage of sales: The 3PL charges a percentage of the total sales value of orders they fulfill. This model incentivizes the 3PL to help boost your sales.
  • Tiered: Fees are on a sliding scale based on metrics like storage space used, number of orders processed or shipping volumes.¬†

Differences Between 3PL and Freight Forwarding

Freight forwarding and third-party logistics (3PL) are two distinct services that can help your company manage its supply chain. Freight forwarders act as intermediaries between client companies and shipping firms. They negotiate prices, determine transportation, and establish economical shipping routes and other concerns. You might use a freight forwarder if you have a lot of bulk stock that could fit in shipping containers that must go to only one destination.  For instance, a freight forwarder can help a company ship goods from the United States to the UK by negotiating with shipping companies to find the most cost-effective and efficient shipping route.

On the other hand, 3PL companies offer a full range of logistics services, including inventory management, warehousing, and fulfillment. By partnering with a 3PL, your company can access leading logistics industry experts and cutting-edge technologies. For example, a 3PL can send out individual orders to customers from their warehouses on an ad hoc basis, whether small or large. It’s important to note that while freight forwarders do not physically handle goods, 3PLs are responsible for your goods and are the ones handling them on your behalf.

Our Top Five 3PL Companies in the US

There are well over 20,000 3PL companies based in the US alone. It’s safe to say that there is an available solution for any of your logistic needs that also meets your budget. In this instance, we’d say that focusing on bigger companies with up-to-date technology and a lot of warehouse space is ideal. So, we’ve brought together our top five 3PL companies operating in the United States.

FedEx Supply Chain

  • FedEx Supply Chain has over 500 locations worldwide, providing global reach.
  • They offer supply chain solutions for businesses of all sizes, from storage and distribution to transportation management.

UPS Supply Chain Solutions

  • Another major name in shipping, UPS Supply Chain Solutions provides global air and ocean freight forwarding, transportation and logistics management, warehousing, distribution, and more.¬†
  • With locations in over 50 countries, they’re well-equipped to handle shipping for companies expanding into new markets.

Red Stag

  • Red Stag Fulfillment is a popular, tech-focused 3PL that provides fast, scalable fulfillment solutions for e-commerce brands.¬†
  • They offer competitive, affordable pricing, a user-friendly inventory and order management system, and their own branded packing materials.¬†
  • Red Stag has 5 strategically located fulfillment centers in the US, enabling 2-day shipping to 95% of the population.

Rakuten Logistics

  • If you’re looking for an international 3PL, Rakuten Logistics has locations in 5 countries: the US, Japan, China, Taiwan, and Luxembourg, with multilingual customer support.¬†
  • They provide air and ocean freight forwarding, warehousing, and domestic transportation in major markets.¬†
  • Rakuten Logistics works with companies of all sizes, from startups to Fortune 500s.

Shopify Fulfillment Network

  • For Shopify store owners, the Shopify Fulfillment Network integrates directly with your store to provide affordable, fast shipping across the US and Canada.¬†
  • Shopify handles everything from storing and picking/packing your inventory to shipping and returns.¬†
  • They have fulfillment centers located near major cities to enable 1-2 day delivery for most areas.

Helpful Resources

Check out Gartner’s useful tool to sort through ratings and reviews of the top 3PLs. They’re not just limited to the US either, and you can sort by industry, region, or company size.

Additionally, we’ve found this article super useful you want to learn more about warehousing, what happens to your goods and products when they sit on the shelf, and how you can benefit from utilizing fulfillment centers.

Remember to post a query to our load board to get a competitive quote and take the next step in your freight journey. 

Conclusion

3PL can provide you and your business with an ever-growing list of options to get your products to your customers faster and cheaper. Hopefully, this article opened a few doors for anyone looking to take their first steps in outsourcing their shipping logistics. We’d recommend you get multiple price estimates from a handful of 3PLs, as there is a variety of costs that go into hiring a 3PL, and everyone will offer a different combination of services.