By Sotiria Kontopoulou
January 31, 2023
For a lot of ecommerce companies, handling all logistics operations in-house is simply not a feasible option.
For this reason, procurement and order fulfilment are often outsourced to 3PL companies.
Now, you might be wondering what 3PL is.
Well, worry not as this blog post covers everything about it, including:
We’ll also walk you through the process of choosing the best 3PL provider for your needs.
Let’s get into it!
3PL or TPL is a supply-chain management acronym for third-party logistics and refers to outsourcing logistics services such as distribution, order fulfilment, freight shipping, warehousing, etc.
Other services you can outsource to your third-party logistics partner include:
Amazon is a great example of a 3PL provider that offers businesses storage, distribution and sales solutions.
So, 3PL businesses act as ecommerce fulfilment centres that help small and medium-sized businesses (SMBs) mimic the efficiency and speed of large enterprises.
Let’s take a closer look at the benefits of 3PL.
In addition to helping businesses be more time-efficient when fulfilling orders, 3PL also offers the following benefits:
Third-party logistics companies haul large volumes of freight and, thanks to this, they can negotiate lower prices with shipowners. Thus, when collaborating with 3PL providers, you can benefit from lower shipping rates.
Not only is shipping cheaper with 3PL, but also more time-efficient.
More often than not, 3PL operates with a large shipping capacity, which allows them to transport large freight quantities in one go instead of multiple trips.
More money saved and a streamlined, faster shipping process.
Of course, the efficiencies don’t stop at discounted freight rates. The benefits of 3PL span across:
Let’s go back to Amazon for a second. As a 3PL provider, Amazon handles the pick-and-pack operations, deliveries, returns, and customer service for the sellers who enrolled in the Fulfilment by Amazon (FBA) program.
With order fulfilment outsourced to a large (if not the largest) third-party logistics provider, small vendors can operate with the efficiency of retail giants.
For instance, with FBA, products are shipped within two days and customers get free deliveries.
3PL makes order fulfilment and return processing more efficient and cost-effective too.
Furthermore, faster and cheaper deliveries help businesses offer an improved customer experience (CX) without investing in proprietary infrastructure, equipment, or warehousing facilities.
3PL service providers can help you handle orders promptly in times of peak demand without you worrying about seasonal capacity planning, expanding your fleet, or renting another fulfilment centre.
With all that jazz outsourced, you get to enjoy stress-free record sales.
Externalised logistics often mean new business opportunities, as 3PL providers usually operate a large-scale network of fulfilment centres around the world.
This means selling internationally is easy without having to consider any changes to your in-house supply chain operations.
To sum it all up in fewer words, here’s why 3PL partnerships are essential for business growth.
3PL is important for ecommerce businesses that want to expand their reach to new markets, scale easily, and drive cost savings.
Third-party logistics providers enable vendors to access the latest logistics technologies and improve customer satisfaction with fast fulfilment—things often impossible to achieve when handling the last mile in-house.
It’s worth mentioning, though, that outsourcing some logistics processes doesn’t always mean you’re receiving a third-party logistics service.
For example, if you’re contracting with a company for transportation services, you’re likely to be in a second-party logistics (2PL) partnership.
What is 2PL? And how is it different from 3PL?
Before confusion settles in, let’s go over the differences between 3PL, 2PL, 4PL, and 5PL.
The main difference between 2PL and 3PL resides in the fact that 2PL partnerships are usually based on short-term collaborations (e.g., on-call) and provide standardised services and rates that can’t be customised.
2PL is the process of outsourcing a part of a business’s logistics operations, usually shipping and storage.
2PL providers allow businesses to utilise transportation capacity on ships, aircraft, containers, heavy goods vehicles (HGVS), etc., to haul cargo from A to B.
Additionally, 2PL can include warehouse-management and cargo-handling services.
Examples of 2PL providers include delivery and courier companies, ocean carriers, shippers, and freight forwarders.
To better understand the contrast between the two, think of a level-based hierarchy where one-party logistics (1PL) represents the lowest level of service customization and variety.
Here’s an overview:
Moving up on the service level hierarchy, the next level of outsourcing logistics is fourth-party logistics or 4PL.
4PL providers operate globally and offer consultation services, supply chain auditing and logistics automation and digital solutions for minimising costs, increasing supply chain visibility and optimising logistics processes.
So, the difference between 3PL and 4PL is that the latter brings industry expertise and specialists’ competencies to the table in addition to order fulfilment, shipping, and other 3PL-specific services.
Further, 4PL companies don’t own the assets required for transportation, storage, etc., and usually, outsource them to 3PL providers.
Fifth-party logistics (5PL) focuses on the big picture, taking into consideration the global supply networks when creating customised logistics solutions for businesses.
With 3PL, clients are involved in different activities, including inventory management, (possibly) customer support, etc.
With 4PL and 5PL, all of an organisation’s supply chain operations are taken care of by industry experts.
To better understand 3PL, let’s go over the services it provides.
When collaborating with 3PL providers, the standard fulfilment process can be defined in five steps, outlined in the image below.
Here’s what each step entails.
The first step you’re going to take upon starting your collaboration with a 3PL provider is shipping inventory to your partner’s facility.
Your 3PL collaborator will receive and store your inventory in their fulfilment centres onto pallets or shelves, depending on the items’ dimensions.
Ideally, your 3PL provider is using a warehouse management system that not only oversees inventory levels but also integrates with your ecommerce platform (usually through APIs or EDIs).
This way, new orders will be automatically sent to the fulfilment centre in real time, and you will not have to manually input the order details and send them over to your 3PL.
Once an order is sent to your 3PL, the warehouse picking team starts the process of fulfilling that order.
The first thing they’ll do is retrieve the ordered items from their storage location and bring them to the packing station.
Next, the ordered items are packed and prepared for shipping.
To keep shipping costs low, 3PL providers follow specific packing protocols to ensure parcels are taking as little space as possible while being protected.
To achieve that, 3PL use different layered materials such as:
After the order has been packed, it’s labelled with the shipping details, loaded on delivery trucks and transported to the end customer.
Once the shipping order is ready for shipping, the 3PL generates a tracking number that customers can use to track their orders.
The last step in the fulfilment process is reverse logistics management. That’s when your 3PL processes returns and adds the items back to your inventory.
For a smooth flow through every step of the fulfilment process, you need to choose your 3PL provider wisely. Let’s see how you can do that.
As a business owner, you have to consider some things before sealing the deal with a 3PL provider.
Here are a few tips to ensure you’re making the best choice.
3PL providers specialise in handling different types of order sizes and products.
Let’s say you’re running a frozen food business. In this case, you’d want to look for a 3PL company that has the capacity and expertise to safely deliver your temperature-sensitive orders to customers.
The bottom line here is that you should choose a 3PL provider that has the right capacity and equipment to accommodate your needs.
The location of your 3PL’s fulfilment centres is the key to scaling your business smoothly in the future.
If you’re planning to ship to other countries, for instance, you’d have to go with a 3PL that has international coverage not only in terms of shipping but also storage.
Keep in mind that the location of warehouses can drastically affect shipping costs. The closer the storage facility is to your end customers, the cheaper the delivery expenses.
Since most customer support calls concern order fulfilment (e.g., wrong items delivered) it only makes sense to look for a 3PL provider that also offers customer support services.
When doing so, ensure you go over the customer service response time your 3PL can guarantee.
You don’t want issues pending for too long and chipping away at your customer satisfaction levels.
Fulfilment costs are not limited to how much a typical order is charged.
This category contains less commonly discussed expenses, such as the cost of shipping errors, packing mistakes, product damage, etc.
Ideally, your 3PL should bear the cost of mishaps like these.
Even though you might not immediately need access to all of your 3PL’s offerings, it’s important to familiarise yourself with all the services it provides.
This way, you’ll know exactly to what extent your 3PL can house your growing business needs.
So, be sure you’re aware of its available warehouse space, shipping capacity, etc.
Hopefully, now you know what 3PL providers do and how they can help your business.
But before you jump headfirst into a 3PL-seeking journey, there’s one more thing we’d like to tell you.
Over to you
Outsourcing logistics processes sometimes distances you too much from the supply chain.
MarineTraffic can help you take back control and track at-sea shipments in real time. Our platform pulls data from multiple sources, including carrier track-and-trace data, a large automatic identification system (AIS) and vessel schedules.
All that raw data is then processed with the help of machine-learning techniques to output the near real-time location of your shipment.
Sign up for a demo with MarineTraffic and see how it works!
Content Manager at MarineTraffic