An Introduction to the 3PL – Third-Party Logistics Explained

January 12, 2021
Post by
Frazer Kinsley
An Introduction to the 3PL – Third-Party Logistics Explained

What is 3PL?

There are three major players in the supply chain: shippers, carriers, and third-party logistics solutions, also known as 3PLs. The first two are pretty self-explanatory - the shipper is the business that has a product that needs to be shipped, while carriers are the truck fleets and drivers that carry those products from origin to destination.

While that sounds fairly simple, it comes with a myriad of logistical hurdles on a national or even global scale. This is where the third party comes in. The 3PL specialist is a professional problem-solver. Their entire job is to make the shipping process as seamless and as streamlined as possible for both the shipper and the carrier.

3PL companies handle both inbound and outbound logistics for shippers to ensure their freight goes from end to end without hassle to the shipper.

Services provided by third-party logistics solutions

Companies are focused on creating quality products for consumers and don’t have time to keep an eye on the ever-changing landscape of the supply chain. By partnering with a 3PL, shippers get back hours every week to generate more revenue they would have otherwise spent trying to navigate their products throughout the many destinations they ship to.

One of the biggest problems the supply chain faces is the lack of transparency and shipment fulfillment. On their own, it can be very difficult for shippers to know that their product will make it to the destination on time, but to also know that their shipment is being handled with the utmost care by the carrier.

These two problems are what make third-party logistics companies so critical. One of the benefits of working with a 3PL is the freedom to let them handle all of the logistics from end to end. The 3PL expert you choose to go with will have eyes on your product as it moves along its route, and provide updates as needed. On top of that, through years of working in the supply chain, 3PLs develop strong relationships with carriers and can put the right carrier on the job for shippers and their products.

Depending on which 3PL work with, you can leverage their network of carriers and the technology they utilize for their shipments to benefit your supply chain. After all, most of the industry is competing with the bold claims from Amazon with two-day shipping but don’t have the resources in-house to guarantee that on every order. This is where the third-party solution makes a crucial point. Some of the benefits to working with 3PLs include guaranteed quick pick-up, fast shipping, real-time tracking, and more to help any shipper compete with some of the biggest competitors in their direct supply chain.

Types of companies who should use a 3PL

Online stores: If you are a small business and running a purely online store, a 3PL might be a solution to consider. Because time is such an important commodity in small businesses succeeding, it’s important to make sure that you aren’t spending a significant amount of time on the shipping process. To get back the hours you normally spend handling shipping logistics, hire a 3PL and focus on the aspects of your business that need more of your attention.

Getting your focus away from shipping can allow you to put it more into marketing and sell more products to a broader audience.

Inventory restricted: Businesses who have limited inventory space and are constantly struggling to find more could greatly benefit from a third-party solution.

This goes hand in hand with some online stores as well, but inventory space is not easy to come by and can be particularly difficult depending on the type of product you manufacture.

3PLs come in handy in two ways for this problem. Some 3PLs offer warehousing space to their shippers because it actually helps them get shipments out faster to ensure guarantee promises. Think of it like an Amazon fulfillment warehouse, but for any business.

The other way is that 3PLs can automate shipping processes for you to keep up with the pace of manufacturing. That way, businesses will have products moving out of the warehouse just as fast (or faster) than products coming in.

Businesses without shipping departments: This one sounds obvious but it should be stated. If your small business plan doesn’t include a full-time supply chain expert on the books, then you need to factor in a 3PL from the start. 

Some businesses are made by their customer satisfaction. It can be an uphill battle if they have a lot of customer complaints about the shipping early on.

Benefits of working with third-party logistics solutions

Saving time and money: The 3PL is designed to maximize profit for shippers. Time can be more valuable than money, but a 3PL can save you both. 

Top level industry knowledge: The folks that work for third-party logistics solutions groups often have years of hands-on knowledge. Shipping is one of the oldest processes in the world, and believe it or not, there are so many antiquated elements that are holding the entire supply chain back from being a transparent, automated infrastructure. Having an expert handle your shipments can alleviate stress and frustration from your life.

Networks and technology: Alongside having an expert on your team, 3PLs invest in dedicated carrier networks and modern tracking and management technology.

Some 3PLs will even share data and software access to the shipper so they can see exactly what the status of their shipment is and to mitigate expectations in case of delays.

3PL order fulfillment process

As companies grow larger over time, the ability to oversee order fulfillment in-house might not be possible. In some cases, businesses can hire top level industry experts for their own in-house team to manage order fulfillment. However, when scaling happens most companies opt for a different solution. As orders grow, you need to maintain the same quality of service a customer would expect, which usually leads to trusting your orders to third-party industry professionals.

Scaling a company is a lot harder than it sounds. When a company grows, it has to deal with personnel limitations, space limitations, even financial limitations that could put them in a worse spot down the line if things are not handled properly.

Most 3PLs use a transportation management system that allows them to access real-time visibility of products in transit and update shippers faster than before. Others offer warehousing space to guarantee order fulfillment for the shipper by taking out the process of moving products from shipper to the fulfillment center early on.

How to know which 3PL to work with

In order to determine which 3PL is the right one for shippers to work with, there are a number of things to consider in regards to the needs and culture of the shipping company themselves.

First, there are several kinds of trucks that are designed to carry specific loads over the road. Lock in with a 3PL who has great relationships with carriers who excel in hauling the type of products or materials you plan to ship.

If the shipper prefers person to person business and would rather conduct their shipments that way, there are certainly 3PLs who can cater to those needs. Whereas, if the shipper loves technology and would prefer to automate their processes between all supply chain parties, then you want to select a 3PL who is integrated with your transportation management system—or TMS.

3PL pricing

There are several modes of shipping in the supply chain that aren’t all equal. Choosing the right mode for you can determine the price and delivery times of each shipment. Here are some of the modes you’ll frequently see:

Full truckload, or FTL, is when a shipper requests an entire truck for their shipment. This decision can be made based on the volume of product, the weight of the product, and dedicated shipping (from point A to B only).

Less than truckload, or LTL, is when a shipper needs a small amount of product on a truck and is willing to share that truck with one or a few other shippers’ products. Because you are using less of the truck, you will pay less than an FTL shipment, however, your product might not be delivered within the projected window based on the route of the other products’ destinations.

Drayage isn’t an over-the-road mode of shipping but is often used to transport shipments from shipping vessels or railroads to a nearby distribution center. From there, an FTL or LTL shipment is typically required.

Final Mile is a service that most consumers are aware of because they operate in commercial and residential delivery. For companies that need to ship products directly to consumers, they need to take into consideration utilizing a final mile mode.

The bottom line

If you’ve got any questions about what is going on with your supply chain, Hook Logistics is here to help. 

Our team provides expert-level knowledge of logistics to provide your team with the fairest fulfillment services in the biz. From retail to eComm, we’ve got your back - schedule a free consultation with our CEO today!

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Post by
Frazer Kinsley

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