Shipping is often very complex. There are many factors to consider when deciding how to ship your products and which company to use, including whether to use 3PLs vs. asset-based carriers. To make things more complicated, many of these factors are heavily dependent on several individual elements that are unique to each business.
Things like the size and weight of shipments, the service area, and the average number of shipments per month will all influence which method and provider best suit your needs. Since these factors also vary wildly from business to business, there's no universal answer that would apply to everyone.
We do our best to provide the information you need to understand your options, the benefits and drawbacks of each, and the factors that affect them. Then, you can evaluate your needs and weigh the factors relevant to your business specifically.
People often ask, what's the difference between 3PLs vs. asset-based carriers? It can be difficult for people to tell them apart due to the way the terms are used and the overlap between them.
In this article, we'll define each of these terms, compare 3PLs vs. asset-based carriers, and note the differences. We'll do our best to make the distinctions as clear as possible and provide all the information you need to make the right choice.
3PL stands for third-party logistics. Technically, the definition of a 3PL includes "anyone outside of your company that handles your product without owning it." That means any outside contractor you hire to provide shipping, warehousing, or logistics services falls under this umbrella. Some 3PLs offer more than one or even all three of these services.
This definition is very broad and not very useful in most situations. When discussing shipping specifically, the term 3PL is typically used to describe a non-asset-based company that doesn't own the equipment used to ship your products. Instead, it has a wide network of asset-based carriers who each own their own equipment.
They negotiate with these outside providers to get access to cheaper pricing than individual customers could typically access due to the volume of customers they work with who use their shipping services. They give their customers access to this portfolio of the many asset-based carriers they have contracts with.
Customers looking to ship something go to the 3PL's website and input their shipping details. Then, they're provided with a list of carriers and their prices to choose from. Based on the information and pricing provided, they decide which option they prefer. Then they pay the wholesale price the 3PL secured with that company, plus whatever markup they've agreed to pay the 3PL itself.
The idea behind this method is that 3PLs negotiate the best price they can with each asset-based carrier. They then pass those savings on to customers at a markup. In theory, this gives customers access to better prices than they could get directly. Also, the 3PL makes a profit by offering customers a network of low-cost providers for slightly more than their negotiated rates.
The term 'asset-based carrier' describes a carrier that owns and operates the equipment they use for your shipments. Instead of contracting one of many outside carriers to transport your products, they do it themselves. These are the carriers that 3PLs negotiate with to secure wholesale pricing for their customers.
There's one basic difference between asset-based and non-asset-based carriers to keep in mind when deciding which of these approaches is best for you. Working with an asset-based carrier means the company you have a direct relationship with is the company that owns the trucks and other shipping equipment that will be used to transport your shipments.
Working with a 3PL means you're hiring a middle-man company to provide you with rates for several asset-based carriers, allowing you to choose which to work with for each shipment. You don't have a direct relationship with any of the carriers individually.
When distinguishing non-asset-based 3PLs vs. asset-based carriers, people often focus on the flexibility that a 3PL with a large network of possible carriers provides. Since there are multiple carriers involved, you'll have more options. This provides flexibility in choosing the carrier with the best price and delivery time for each shipment.
Also, for each location, they provide a list of carriers that cover that area. You can choose the one with the best price. When working with a specific asset-based carrier, you'll have to find one that covers all the areas you ship to and from and pay the price they charge for each shipment, which can vary based on location.
Furthermore, having ongoing relationships with various carriers can sometimes help them provide a better price. A carrier may be willing to offer steep discounts to a 3PL that brings them steady business from multiple shippers. This allows them to provide you with a lot of savings.
A 3PL can provide you with quotes for multiple carriers. But those deals only apply so long as you ship with them and get billed through the 3PL. Depending on the circumstances, it's possible to get just as good a deal working with the carrier directly; sometimes, you might get an even better deal.
In those cases, especially when dealing with things like claims and reclasses, having this kind of 3PL provider can just add another layer of bureaucracy. It sounds like a huge cost savings opportunity across the board, and it once almost certainly was. However, that often isn't true anymore.
Also, it's best never to rely on an integration for a 3PL you don't actually ship with. Sometimes people install 3PL integrations to view multiple carrier prices and provide quotes at checkout. Then they ship with a different 3PL or work directly with an asset-based carrier. This is never a good option.
Not only do those prices not apply in that situation, but they may cancel your account without warning or notice. This can prevent customers from seeing any quotes at checkout. If it isn't caught quickly and replaced with another integration, it could result in significant financial losses.
Working with an asset-based carrier can have advantages that aren't always obvious in the 3PLs vs. asset-based carriers debate. Using one provider can mean they're more willing to provide a great discount depending on your shipping volume. Those prices can be just as good or even better than other 3PLs.
Plus, working with the same people means they'll get to know your business over time. They'll learn how best to handle your shipments and what your unique needs are. They also know their assets well. All of this can mean they get the job done cheaper and more efficiently due to their experience with you and their own process.
Most customers work with one or two asset-based carriers. This means the choices are limited compared to the long list of carriers a 3PL would provide. Having only a couple of carrier options, each with a set number of resources to work with, can mean less flexibility and more difficulty, especially if your needs change suddenly.
This lack of flexibility could end up costing you. It may translate into:
People like simple answers and easy choices. However, in life and in business, these rarely exist. Seldom is anything truly as black and white as we wish it were. It may be simpler to think of things that way. But it's far from the best way to make complex decisions.
The reality is that while 3PLs can sometimes offer more flexibility and better pricing, they don't always do so. Also, while working with an asset-based carrier can be more rigid and mean limited resources, these days, it certainly doesn't have to. Reputable asset-based carriers with solid long-term track records will have found the right balance to deliver for their customers and their unique business needs.
Plus, many asset-based carriers have started moving toward a more hybrid model, anyway. They own much of their own equipment, but they also work with a network of outside carriers to provide what they can't. All these factors have allowed them to close the pricing and flexibility gap that used to be present in the 3PLs vs. asset-based carriers debate.
Today, both types compete more closely, which makes comparing 3PLs vs. asset-based carriers more individualized. It will depend on your business needs, your shipments, and various other circumstances.
First, you'll have to figure out which one best matches your service area. Then, see who offers the best prices given your specific needs, shipments, locations, and volume. Don't just look at the discount they offer; 75% off a lower price can mean a lot more savings than 85% off a vastly higher one.
Also, be vigilant for extra fees and costs that may be hidden, like absolute minimum charges and additional service fees (residential address delivery, lift gate fees, etc.), which can cost more than the shipping does. Also, thoroughly check their history, satisfaction rate, on-time delivery rate, customer service quality, and other factors that can be found in customer reviews.
For a more detailed look into how to decide on the best carrier for your business, check out our article on what factors to use when choosing the right LTL freight carrier. The method is the same for weighing 3PLs vs. asset-based carriers. Feel free to reach out if you have any questions or to learn about how Eniture can help your business.
Eniture Technology specializes in helping e-Commerce merchants grow by providing useful information, digital marketing services, off-the-shelf apps that solve common problems, and custom programming services. Please contact us if you need help growing your online business or implementing the concepts presented in this blog post.
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