What is a 3PL provider (third-party logistics company)?

A third-party logistics provider, or 3PL provider, is an outsourced company that manages a particular part, or all parts of your logistics and transportation operations and executes transportation, freight management, warehousing, and other activities. In the simplest form, a 3PL company coordinates and manages functions for better transportation and supply chain efficiency. More than 65 percent of shippers are increasing their use of outsourced logistics services in recent times.

Why do businesses use third-party logistics providers (3PLs)?third party logistics

3PL providers may manage a single part or a multitude of different supply chain processes within your company. Also, third-party logistics companies are capable of managing multiple areas of your supply chain. To put it simply, companies use third-party logistics providers to manage their logistics operations in a productive and cost-efficient manner.

3PL vs 4PL: What is the difference?

Both 3PLs and 4PLs are companies that help businesses manage their logistics functions, however, there is a difference between these two types of providers. Basically, 4PLs have extended functionality and mainly focus on overall, general management and execution functions, while 3PL providers are more inclined towards particular operation, transportation, and warehousing.

A third-party logistics provider 3PL handles certain transportation operations and supply chain functions of a business. While the main competency of a 3PL is moving freight, it also provides additional logistics services. A 4PL provider is basically a 3PL with extended functionality. It appeared as a service for companies that need more coverage in terms of logistics and supply chain management. Usually, 4PL’s provide a wide span of services and hold more responsibility and accountability.

Which services does a 3PL provide?

If a company’s supply chain becomes too complex to manage internally, outsourcing to a 3PL is a great solution. You are still in control of the overall logistics processes and strategy, but burdensome manual operations are handled by a third party. Typically, a 3PL provides the following services:

  • Freight forwarding
  • Transportation management
  • Load management & dispatch
  • Warehouse and inventory management
  • Supply chain management
  • Technology integration

What are the benefits of using a 3PL provider?

Time savings

Third-party logistics providers can save companies the time they would normally spend carrying out the management of their supply chain. Usually, 3PLs take over transportation operations and some managing functions, so the amount of manual job is greatly eliminated. Also, thanks to 3rd party logistics companies and their technology, you save time on automated paperwork, fewer organizational errors, and time spent on arranging shipments.

Continuous optimization

3PLs have the ability to make modifications to each connection in the supply chain when needed. The company benefits from the continuous improvements made to their logistics process when they outsource a logistics firm. Apparently, one of the main goals of using a 3PL is optimization. These companies analyze your supply chain and operation and can define gaps and inconsistencies, helping you to optimize processes. A 3rd party logistics company goes through every step of your supply chain to define the unnecessary operation and find the potential for cost savings.

Cost savings

3rd party logistics company has more buying power, extensive carrier networks, and offer lower transportation rates. 3PLs also can help reduce the rate of returns, claims, shipping errors, and lost sales. Through industry connections and thorough analysis, 3PLs can cut a substantial amount of costs you are spending on freight transportation and logistics. Thanks to relationships with carriers and experienced freight brokers, 3PLs can negotiate lower rates for you and ensure to eliminate unnecessary costs.

Capacity

Regardless of the season, 3PLs give you access to the capacity and required equipment. Through their relationships with thousands of carriers, third-party logistics providers ensure to support your freight volume. Also, they give you the opportunity to optimize inventory and warehouse management.

Technology

A 3PL with a TMS is instrumental for insight into the supply chain. TMS technology provides the custom data you desire. TMS software is very expensive, so when a 3PL integrates the technology, you save money and get more accessibility to capacity. Shippers benefit from increased load consolidation, more frequent backhauls, and optimized routing and distribution.

Expertise

3PLs have the expertise and thorough industry knowledge, and they can accurately forecast what will work best for their customers. They have technology that is able to produce advanced reporting and inventory management, tracking the entire logistics process. When companies choose to work with a 3PL provider, they fully reap these benefits as the 3PL truly becomes an extension of their team.

How to choose a reliable 3PL?

Industry expertise

Transportation and logistics are complicated industries with stiff competition. If a company has survived on the market and established itself, there is a good chance they are trustworthy and reliable. Pay attention to how many years of experience a logistics provider has. Additionally, look at their expertise field and specialization. 

The range of services

Essentially, services are what you will need from the freight shipping company in the first place. Clearly define which services you are looking for. Once you’ve determined your needs, look at the shipping providers with expertise in a certain field and service. What companies do they work with? How exactly can they help you? How do they differentiate themselves from competitors? Keep in mind all of these questions during your research.

Carrier network

It doesn’t matter if you ship cross-country or globally, you want skilled carriers and access to capacity. A wide network of reputable carriers is definitely a ‘must-have’ in a good freight shipping company. Depending on the provider’s primary field, the ratio of carriers can vary. 

Customer service

Ultimately, when you’ve decided with a few suitable options, it’s time to do the final check: customer service. A good company cares about prospects and customers and will help you with your questions. In order to define whether the chosen provider will deliver you a positive customer experience, look at its communication. Whether you’re asking for a freight quote or general consultancy, the reliable shipping company will help you and respond on-time.

Values

Matching value is a cornerstone of any successful 3PL relationship. Successful 3PL knows their core values and stick to them. Know what you are looking for and don’t compromise your own values. What is essential for a successful partnership? Integrity, accountability, and flexibility. Company culture goes along with values, not only on paper but clearly seen in everything a company does.

To learn more and to see first-hand how a 3PL can help you manage your logistics, contact us today for a free transportation cost analysis.