The term Third Party Logistics, or 3PL first became part of business lingo in the 1970s. At the time it meant transportation services which an intermodal marketing company (IMC) offered.
The meaning of 3PL grew to include all kinds of logistics service. Section 235 of the Consumer Product Safety Improvement act of 2008 defines 3PL as anyone outside of your company that handles your product without owning it.
As you grow your business, scaling your supply chain gets expensive and time consuming. If you tried to handle all your supply-chain functions in house, you would spend a lot of time and money looking for warehouses to buy or lease, negotiating deals to buy or lease delivery vehicles, and recruiting staff with the right skills.
But a lot of ecommerce businesses outsource supply-chain tasks to 3PL companies. When you partner with a 3PL, you use their infrastructure to handle all or part of your logistics needs.
Since 3PL is such a broad term, it can cause a lot of confusion for a small ecommerce business owner. So we’ll try to take the mystery out of 3PL.
A lot of 3PLs offer all three services, but not all. Some offer 3PL shipping only. Others offer warehousing and fulfillment.
Every 3PL shipping company has its own unique business model, but they generally center around two models. The difference is in the amount of control you have over the choice of carriers.
A gainsharing 3PL shops for carriers that offer low rates and books shipping for you. Then you pay the shipping rate plus a finder’s fee.
The low up-front costs of a gainsharing 3PL make this model appealing to a lot of small businesses.
If you partner with this type of 3PL, watch out - some will use inferior cut-rate carriers. I’m sure you know how going with the cheapest can sometimes cost you. You don’t want relations with your customers to suffer because of unreliable carriers.
If you go with a gainsharing 3PL, look for a dependable track record for at least the last two years.
Shipping resellers can get deep volume discounts on freight rates. Then they add a margin or markup the rate and offer them to you. How much margin they add depends on the volume of freight you ship each month. In other words, if you ship less than 100 times per month, they will charge a higher margin than another account who ships more than 100 times per month.
When you work with a reseller, you can choose from several carriers. You stay in control of which carrier you use, so you don’t risk being stuck with shoddy service.
Full Truckload (FTL). When you ship product without sharing cargo space with other shippers, it's called Full Truckload, or Truckload. If your cargo takes up half or more of trailer space, FTL is likely the most efficient option.
Less Than Truckload (LTL). When your shipment is too large to send through a parcel carrier, you might ship LTL. With LTL, you share cargo space with other shipments going the same direction.
Final Mile or Last Mile. Sometimes you may need to ship FTL and have the load broken down into individual orders at a cross dock (more about cross docking later). The packages then go onto smaller delivery trucks.
LTL typically hauls with a shorter trailer than FTL, so you might not need a final mile carrier. If your LTL shipment goes to a residential address, book a vehicle with a lift gate so the driver can unload at street level.
A 3PL that provides warehousing can give you flexibility in managing inventory. You can easily scale your inventory according to product demand. That means during peak demand times, you can get more space with a phone call or an email. And during slower times, you won’t have idle warehouse space.
It can be costly to keep product in inventory.
Rather than keeping your product in storage, a cross-dock receives incoming freight, breaks it down, and then loads onto outbound trucks for distribution.
Cross-docking can greatly reduce the cost of inventory as long as your supplier can handle a surge in demand.
Almost all 3PL warehouses offer some level of fulfillment service. If you are a Business to Business (B2B) merchant and mostly ship Full Truckload to your customers, you may only need a warehouse that will load outbound trucks and fill out a Bill of Lading (BOL).
But if you sell to consumers, or you’re a B2B that typically ships parcel or LTL, you may need other services.
A 3PL warehouse that picks, packs and ships your product is often called a Fulfillment Center. Having a partnership with a 3PL fulfillment vendor can give you the freedom to focus on growing your ecommerce business.
Other than storage, a 3PL Fulfillment Center might offer -
That’s right - the world’s largest online retailer is a 3PL.
Fulfillment by Amazon. You can sell your product through Amazon with Fulfillment by Amazon (FBA). You send them a quantity of your product, which they store in their warehouse. Then when a customer places an order, Amazon picks, packs, and ships it for you.
Even though you own the product, Amazon treats it as if it’s theirs. That is, they pack it in a box with the Amazon printed logo. If you’re trying to promote your own brand, the retail giant’s shadow might be too large.
Seller Fulfilled Prime. With FBA, Amazon takes control of your inventory and you sell on their platform. You might not want to give them that much control. If you want to promote your own brand rather than Amazon’s, Seller Fulfilled Prime (SFP) might be the way to go. You keep the product in your own warehouse or with a 3PL partner.
And you get to display the Amazon Prime badge with your product’s description on Amazon’s website. But you have to agree to play by Amazon’s rules.
Merchant Fulfilled Network.. This is like SFP, except that you don’t display the Amazon Prime badge and you can offer whatever shipping terms you want. If you’re trying to reach customers who don’t mind waiting for a few days so that they can get a bargain, this might be a good choice.
In 2015, FedEX bought out GENCO and rebranded it as FedEx Supply Chain two years later. FedEx offers a lot of valuable services for ecommerce businesses.
FedEx Transportation Management. You can have a single point of contact for all your shipping needs. They offer online transportation management tools so that you can track shipments 24/7. You can also contact an account manager any time of day or night.
Warehouse operations. Fedex offers a wide range of warehouse services, They can provide dedicated or shared warehouses or even help you plan, design and start up your own. They can provide staffing for your warehouses so you won’t need to hire and train employees.
FedEx doesn’t just give you a place to park your goods until you sell them. They also offer supply chain engineering.
Fulfillment. FedEx Fulfillment gives you an online platform that you can integrate into most of your ecommerce systems.
You’ll upload your inventory onto the FedEx Fulfillment platform, ship products to a FedEx warehouse, and you’re ready to sell online.
You likely went into business for yourself because you found your passion. So, of course you want to grow that passion, and 3PL partnerships can provide logistics solutions that make growth more profitable.
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.
If you are interested in offering LTL freight as an option on your online store, take advantage of our free guide on LTL freight.
If your products are smaller and you'd like to learn more about using parcel services effectively, check out our free guide, A Beginner's Guide to E-Commerce shipping.
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