What Is 3PL? Meaning, Purpose, Pros, and Cons

ByNikolina Cveticanin
October 18,2022

If you’re in the business of shipping and logistics, then you’ve probably heard of 3PL. But what is it? How does it work? What are the benefits and drawbacks of using a 3PL provider? In this article, we’ll answer all these questions and more! 

Starting with 3PL and the meaning behind this abbreviation, we’ll define what a third-party logistics company is. We’ll also explain how they differ from other types of logistics providers and take a look at the services they offer. Finally, we’ll discuss some of the pros and cons of using a third-party logistics provider for your business.

So, whether you’re just starting out in shipping and logistics or are looking for a better way to manage your operations, read on for everything you need to know about 3PL!

What Is a 3PL?

A third-party logistics provider, 3PL, is a company that provides logistics management services to businesses. 3PLs manage the transportation and storage of goods, as well as import and export compliance and customs clearance. 

In some cases, a 3PL may also provide value-added services such as inventory management, assembly, and packaging. By outsourcing logistics needs to a 3PL, businesses can save time and money, as well as benefit from the expertise of a company that specializes in this area. 

While there are many types of 3PLs, they all share one common goal: to provide efficient and cost-effective logistics solutions for their clients.

How Does 3PL Work?

3PL providers can handle everything from transportation and warehousing to fulfillment services and return management. In addition, 3PL providers often have access to a global network of resources, which can help businesses expand their reach and tap into new markets.

3PL providers generally work on a contract basis, meaning businesses only pay for the services they use. This can be a cost-effective way to outsource logistics functions, as businesses only incur costs when they need to use 3PL services. 

In addition, 3PL providers often have established relationships with transportation suppliers, which can help businesses get lower rates on shipping.

Overall, working with a third-party logistics company can be an efficient and cost-effective way to manage your business's logistics needs. When choosing a 3PL provider, it's important to select one that offers the services you need, and that has a good reputation in the industry. 

In addition, be sure to review the terms of the contract carefully before signing so that you understand exactly what you're getting into.

Different Types of 3PL Services

When it comes to logistics, there is no one-size-fits-all solution. The type of third-party logistics services you need will depend on the specific needs of your business. To help you choose the right 3PL partner, here is a rundown of the most common types of 3PL services.

Transportation Management

With transportation management services, businesses can outsource all or a part of their shipping operations. This includes tasks such as route planning, carrier selection, and freight negotiation. Transportation management services can help businesses save money and improve efficiency.

Warehouse Management

A 3PL provider can take over all or a part of a business’s warehouse operations, including receiving, inventory management, and shipping. This can free up valuable resources so that you can focus on other aspects of your business.

Order Fulfillment

If you sell products online, you may need assistance with order fulfillment. 3PL companies can pick, pack, and ship orders to your customers. This service can help you improve customer satisfaction and reduce shipping costs. Furthermore, order fulfillment software can help you scale your business more effectively.

Returns Management 

Returns are a fact of life for any business that sells products online. A 3PL provider can manage the returns process for you, from handling customer inquiries to processing refunds. This service can help you minimize the cost and the hassle of returns. In addition, a good returns management system can help you reduce the number of returns you receive.

Inventory Management 

An inventory management system is a critical component of any logistics operation. A good inventory management solution can help you track your inventory, optimize your stock levels, and reduce your overall costs. It can also help you improve customer satisfaction by ensuring that you always have the products your customers need in stock.

Freight Forwarding

If you need to ship goods internationally, you’ll need the services of a freight forwarder. A freight forwarder is a company that specializes in arranging international shipments. They handle all the details of your shipment, from arranging transportation to completing customs paperwork. Ultimately, freight forwarders can help you save time and money on international shipping.

Value-Added Services

Many third-party logistics companies offer value-added services such as product assembly, packaging, and labeling. These services can save you time and money by eliminating the need to outsource these tasks to other vendors.

When selecting a 3PL provider, be sure to choose one that offers the type of service you need. And don't be afraid to ask for referrals from other businesses in your industry. Chances are good that they've worked with a 3PL provider before and can give you some insight into which companies are worth considering.

Benefits of Using a 3PL

A 3PL can provide many benefits for businesses of all sizes, including lower shipping costs, improved customer service, and increased efficiency.

Perhaps the most obvious benefit of using a 3PL is that it can save you money on shipping. 3PLs have relationships with major carriers like UPS and FedEx, and they can often get discounts that you wouldn't be able to get on your own. In addition, 3PLs can help you optimize your shipping routes to reduce costs further.

Another benefit of using a 3PL is that it can improve your customer service. A good 3PL will have experience in handling customer orders and will be able to quickly resolve any issues that may arise. This can free up your time to focus on other aspects of your business.

Finally, a 3PL can help increase the efficiency of your logistics operations. A good 3PL will have state-of-the-art warehouse management systems that can help you keep track of your inventory and orders. This information can be invaluable in planning future production runs and ensuring that you always have the products your customers need in stock.

As you can see, there are many 3PL advantages and reasons to consider using one for your business. If you're looking for ways to reduce costs and improve efficiency, a 3PL may be the solution you're looking for.

Disadvantages of Using a 3PL

While third-party logistics solutions can offer a number of advantages to businesses, there are also some potential disadvantages that should be kept in mind. 

One of the main 3PL disadvantages is the loss of control over the shipping process. When businesses use a 3PL, they are essentially outsourcing a key part of their operations to another company. This can lead to communication breakdowns and delays, which can ultimately impact the customer experience. 

Also, businesses may have to sacrifice some flexibility when using a 3PL, as these providers often have set schedules and processes that may not always align with the needs of the business. 

Despite these potential disadvantages, 3PLs can still be a valuable option. Once businesses master the basics of 3PL and how to integrate it, they can start reaping the many benefits it has to offer.

Who Is 3LP For?

Third-party logistics providers can be a good option for businesses of all sizes. However, they are often most beneficial for small to medium-sized businesses that don’t have the resources or capabilities to handle shipping themselves. 

In addition, businesses that have complex shipping needs or require value-added services such as product assembly, packaging, and labeling may find it helpful to use a third-party logistics company.

If you're considering using a third-party logistics provider for your business, be sure to do your research to find a reputable and experienced company that can meet your needs.

3PL vs. 4PL: What Is the Difference?

Now that we know what a third-party logistics provider is, you may be wondering what a 4PL provider is. While the two terms are often used interchangeably, there is actually a major difference between the two. 

A fourth-party logistics provider (also known as a lead logistics provider) is essentially an extension of your company. They work closely with you to develop a customized logistics solution that meets the specific needs of your business across the entire supply chain. 

A 4PL provider is typically more expensive than a third-party logistics provider, but it can offer a number of advantages, such as increased flexibility and customization. Furthermore, a fourth-party logistics provider can provide a higher level of service, as it’s more invested in the success of your company.

So, which is right for you? It really depends on your business plan and the needs of your business. If you're looking for a more hands-off approach, a third-party logistics provider may be a good option. However, if you need a more customized solution, a fourth-party logistics provider may be a better choice.

Final Words

Now that you know what 3PL is by definition and how it works, you can make an informed decision about whether or not it’s the right solution for your business. 

Think about your needs and goals, and weigh them with the advantages and disadvantages of using a third-party logistics provider. By taking the time to do your research, you can find the best solution for your business.

FAQ
Is Amazon a 4PL?

Amazon is not a fourth-party logistics provider. However, it offers a number of logistics services, such as warehousing and shipping. Also, Amazon has been known to partner with third-party logistics providers to help them with their shipping needs.

How does a 3PL make money?

A third-party logistics provider typically charges a fee for its services. The fee might be per project or on a monthly basis. It really depends on the provider and the agreement with the client.

If you only need some 3PL basics such as transportation and warehousing, you’ll likely pay a lower fee than if you need more complex services, such as product assembly or packaging. 

What are the three types of logistics?

The three types of logistics are inbound logistics, outbound logistics, and reverse logistics. Inbound logistics refers to the process of bringing goods into a warehouse or facility. Outbound logistics is the process of shipping goods from a warehouse or facility to the customer. Reverse logistics is the process of returning goods back to the supplier. This might happen if the customer is not satisfied with the product or if the product is damaged.

What is the difference between a 3PL and a broker?

3PL, meaning third-party logistics, and a broker are two different types of services. A broker is a middleman who doesn’t actually provide any logistics services. They simply connect businesses with service providers. A 3PL provider, on the other hand, actually provides logistics services, including transportation, storage, and everything else in between.

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This is because people are more likely to get frustrated with a voice-activated assistant if they have to keep asking for clarification on product descriptions. Conventional Payment Options Will Take a Back Seat As the world becomes more digital, we expect to see a shift from traditional payment methods to newer, more secure methods such as mobile payments and cryptocurrencies. Unlike recent B2B eCommerce trends, this one will have a more profound and lasting impact on the way businesses interact with customers.  With a variety of ways to pay for goods and services online, customers will have more choice and flexibility when it comes to how they make purchases. We expect mobile payments to become more popular as people become more comfortable using their smartphones to make transactions. Contactless payments have become common during the pandemic, and established players such as Apple Pay, Google Pay, and Samsung Pay are likely to benefit from this trend. Cryptocurrency is another payment method that is gaining popularity, particularly among younger generations. Bitcoin payments, one of the major new trends in eCommerce shopping, have been on the rise lately. As more people become aware of cryptocurrency and how to use it, eCommerce customers will have more options when it comes to how they make payments. Headless and API-Driven Commerce is Gaining Momentum Headless commerce is an architecture that decouples the back-end systems from the front-end. This allows businesses to build their eCommerce store using any programming language and framework they want. API-driven commerce is a similar concept, but it takes things one step further by allowing businesses to connect their eCommerce store to any third-party service using APIs, a type of software that allows two applications to communicate with each other. This eCommerce industry trend is gaining momentum because it gives businesses more flexibility and control over their stores. Companies can also get the advantage of the incorporated SEO, content marketing tools, and digital experience features. Finally, back-end developers and front-end developers can work independently of each other, which speeds up the development process. Product Videos Will Become More Popular As broadband speeds continue to increase and more people watch videos on their smartphones, customer engagement through product videos will continue to grow. Short video content is a great way to show off your products in a way that is more engaging than traditional product photos. They are also a great way to showcase how your products can be used in real-world scenarios directly from your eCommerce store. Unlike photos or descriptions, video content can quickly grab a viewer’s attention and give them an idea of what your product is all about. If you want to stay ahead of the curve, you need to start thinking about how you can use video content to showcase your products or services effectively. Conversion Strategies Will Focus on Building Trust In order to convert leads into customers, businesses need to focus on building trust. Multi-channel selling, Facebook advertising, and Instagram marketing are great ways to convert leads into customers, provided you focus on building trust with your target audience.  As recent online sales trends indicate, consumers are more and more skeptical of advertising and are looking for brands they can have confidence in. This can be achieved in a number of ways, such as by displaying customer testimonials and reviews, social proof, and security seals. Another way to build trust is to offer a money-back guarantee or free shipping. This shows that you are confident in your product and that you are willing to stand behind it. Finally, focusing on transparency (e.g., disclosing your business practices, the manufacturing process, etc.) and building a strong social media presence can also help any business in the eCommerce industry build trust with potential customers. Big Data is a Game Changer Big data is a term used to describe the large volume of data that businesses now have access to. This data can come from a variety of sources, such as social media, website analytics, CRM systems, and more. Big data can be used to improve the customer experience in a number of ways, such as by personalizing the experience, identifying customer pain points, and improving customer service. We've all experienced seeing suggestions on shopping platforms or search engines, and most of us have found them to be pretty accurate. The more data a company has, the better it can cater to its customer's needs, and this will become increasingly important in future eCommerce trends. However, big data carries big challenges as customers are more and more concerned about data privacy. So, businesses need to make sure they are handling customer data responsibly and transparently if they want to keep using it to boost profits. Mobile Commerce Will Continue To Grow Mobile commerce is expected to continue growing in the coming years. According to statistics, mobile devices are used for over 40% of online transactions, their rising popularity indicates that this is one of the trends in online shopping that’s here to stay. Mobile commerce offers a number of advantages for businesses, such as increased reach, shorter buying cycles, and improved conversion rates. It also offers many advantages for customers, including the ability to shop anywhere at any time. If you want to stay ahead of the competition, it’s important to make sure your eCommerce platform is mobile-friendly. This means having a responsive design that looks good on all devices, as well as providing a smooth and easy-to-use mobile shopping experience. Omnichannel Selling Will Become the Norm Omnichannel selling is a term used to describe the practice of selling products through multiple channels, such as brick-and-mortar stores, online stores, mobile apps, and more. This eCommerce trend and approach allows businesses to reach more potential customers and provides a more seamless shopping experience. In the past, businesses have often treated each selling channel as a separate entity. However, this is changing as more and more businesses are adopting an omnichannel approach. This shift is driven by the increasing popularity of online shopping and the need for businesses to provide a more cohesive customer experience. As omnichannel selling becomes more common, it’s important for businesses to make sure they’re building eCommerce websites that can support it. This means having a platform that is integrated with all of your other selling channels and that provides a consistent experience for customers regardless of how they shop.  Environmental Sustainability Will Play a Big Role As we become more and more aware of the impact our consumption has on the environment, sustainability is becoming an important factor in purchasing decisions. Customers that follow new online shopping trends want to know if the products they’re buying have been ethically sourced and if the company they are buying from is taking steps to reduce its carbon footprint. In order to stay ahead of the competition, businesses need to make sure they’re considering environmental sustainability in all aspects of their operations. This includes everything from the sourcing of materials to the packaging and shipping of products. Customers are now more willing to pay extra for sustainable products, so there is a big opportunity for businesses that are able to meet this demand. How To Make the Best Use of ECommerce Trends ECommerce is constantly evolving, and it can be difficult to keep up. However, by staying informed and making sure your eCommerce platform is up to date, you can ensure that your business is able to stay ahead of the competition. To make the most of the latest eCommerce developments, consider the following: 1. Keep Up With the Latest Trends To stay on top of your game, you must be proactive and regularly seek out new information. There is a number of ways to do this, such as reading industry news, following relevant blogs and industry influencers, and attending eCommerce conferences. You can get to know what’s going on in the industry and find inspiration for your own business.  Read up on the research data and statistics that are available on eCommerce growth trends. This can help you understand the current landscape and make informed decisions about where to focus your efforts.  2. Take Advantage of Digital Tools There are a number of digital tools that can help you improve your eCommerce business. From marketing automation software to customer relationship management systems, there’s a variety of features that can make it easier to run your business and provide a better experience for your customers. Check the data and sales figures, and invest in analytical tools so you can understand where your customers are coming from and what they are looking for. 3. Learn From Your Competitors It’s important to keep an eye on your competitors to see what they are doing and how they are reacting to the latest eCommerce retail trends. You can learn a lot from observing their strategies and understanding their strengths and weaknesses. Should they fail, you can learn from their mistakes. If they succeed, you can try to replicate their success. Final Words As the global eCommerce ecosystem continues to grow and evolve, it's important to stay on top of the latest trends. Instead of leaning on traditional shopping methods, more and more consumers are turning to the internet to purchase items. Mobile phones play a big role here, as they provide a convenient way to shop on the go. What's more, consumers are getting more comfortable with new technologies such as AI, AR, chatbots, and voice search. These eCommerce trends in technology are changing the way we interact with eCommerce platforms and retailers. With all that said, we're confident that you now have a solid understanding of the current eCommerce landscape. Just remember to keep your eyes peeled for new trends so you can stay ahead of the curve.
By Danica Djokic · March 07,2023

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