A Quick Guide to 3PL Third-party Logistics

A Quick Guide to 3PL: Third-party Logistics

Many e-commerce sellers, especially those operating in cross-border markets, often face the challenge of shipping products to different countries and regions, which involves multiple steps and procedures. To simplify the process and ensure product safety, some sellers choose to outsource the logistics of their products to freight forwarders or sourcing agents.

Over time, professional logistics service providers such as 3PL, 4PL, and 5PL have emerged. However, understanding the differences between them can be confusing. This post will provide you with all the necessary information about 3PL that you need to know.

What is 3PL in the Supply Chain?

Third-party logistics, or 3PL, is a pattern of outsourcing logistics business to a third-party company. The company is not the seller (first party) or the buyer (second party), but a third party that collaborates with either the first or second party to provide professional logistics agency services, including shipment, storage, picking and packing, inventory management, packaging confirmation, fulfillment, and freight forwarding.

How does 3PL Work? (3PL Services)

After understanding the basic meaning of 3PL, it is essential to learn about the specific 3PL services. This section will explain how 3PL works and the 3PL solutions you may need for your business.

3PL Processing

3PL partners can receive your orders and goods from other factories in the supply chain. They then update the real-time inventory according to your orders and replenish stocks to prevent stockouts.

You can also give feedback on the inventory data to your customers so that they can know whether the product is out of stock or not. This makes your online business more accessible.

3PL Shipping and Distribution

3PL service providers can efficiently ship and distribute your goods globally from the warehouse to your clients in various delivery methods, such as FCL and LCL, consolidation, and deconsolidation of goods.

Cooperating with 3PL companies can help you reduce transportation costs and increase efficiency. They can optimize every step in the supply chain to make the whole process more flexible and complete. If the 3PL company is strong enough, it may have mature technology to track the shipping, or it may use GPS and other devices to track goods.

Moreover, some freight forwarders may be 3PL service providers as well. They represent other service providers to manage the shipping and distribution of your goods as a bridge between you and your providers.

3PL Storage and Inventory Management

New sellers or small businesses may not have sufficient space to store their goods, especially when there is a sudden surge in orders. In this case, you may need 3PL to help you.

Generally, 3PL owns many warehouses in different locations and develops your inventory allocation to lower shipping time and costs. 3PL logistics companies can manage the safe storage of your goods in their warehouses. They have a complete and mature set of management systems to store various types of products, including valuable or sensitive products.

They also have warehouse keepers to manage and check your product inventory so that they can ensure the amounts of your goods exactly in receiving and delivering. So you don’t have to worry about storage problems with your products.

3PL Fulfillment

This is a key responsibility and service of the 3PL business. It’s a basic and most systemic part to integrate all the services above to provide complete 3PL solutions. They can help you realize both B2B and B2C fulfillment.

To be precise, the 3PL services above can be provided by most companies. But you can judge the quality of the 3PL company through this service. It can include all the steps of your business, from receiving orders, picking and packing, inventory, to shipping and delivery, supporting both dropshipping and wholesale shipping.

Advanced Technology

The traditional 3PL solutions offered by 3PL companies are important, but advanced technology is even more meaningful for sellers.

In the era of big data, technical support is required in any industry. With compatible technology, 3PL companies can achieve automatic operations and provide feedback more quickly, including for orders, inventory management, and tracking online orders and returns. Additionally, their technology should be able to keep up with your business requirements and changes, and solve any issues that may arise.

In fact, advanced technology makes the above services more intelligent and efficient, and it is a service that most sellers require to meet their business requirements.

In the following sections, we will provide a complete process to summarize the 3PL services provided by a 3PL service provider to help your business.

If you are an e-commerce seller who imports products from China and sells them in the USA, the basic 3PL processes that your business will go through are as follows:

You place orders with the factory or manufacturer and they produce your products.
Your 3PL partner transports the products to their warehouse.
After receiving goods in the 3PL warehouse, they check them in and store them, and perform inspections.
Your 3PL partner also performs inventory management according to your orders.
After receiving orders, they arrange distribution to different warehouses according to client locations.
They choose the best freight route to lower delivery time and cost.
Finally, products are sent to your clients.

More detailed processes include uploading orders and delivery information to their systems to sync with your order management system for tracking and managing. All of this depends on the technology level of your 3PL partners.

3PL vs Freight Forwarder

The concept of 3PL may remind you of freight forwarders. Indeed, the logistics services of 3PL are similar to the freight transportation provided by freight forwarders.

As for the differences between 3PL and freight forwarders, freight forwarders can only provide all freight steps and customs clearance, while 3PL can not only complete all logistics steps but also provide storage, inventory management, and fulfillment to end customers.

3PL warehouse management is better than that of freight forwarders. For example, when you import products from China, freight forwarders can help ship your ordered goods from manufacturers or suppliers to your destinations for sale, but few freight forwarders can provide storage services because their main business focuses on logistics routes in different shipping methods. Most freight forwarders do not have their own warehouses, and only a few large forwarders may rent warehouses in the destination countries of their main routes.

To be precise, the functions of 3PL are more likely to include fulfillment in addition to the services provided by freight forwarders.

Who Provides 3PL Services? (3PL Service Providers)

3PL service providers refer to those who provide a series of logistics services from the third party, like 3PL companies. They do not produce goods or sell products, but help sellers solve all logistics problems in their businesses, including inventory management, warehousing, shipment, and fulfillment. As your third-party logistics partner, the 3PL company should meet your business requirements in logistics as much as possible.

For example, if you sell your products in different districts or countries, and your products are becoming more popular with larger orders, you need more space to store goods, more resources, and more staff to arrange and manage all steps. But as a beginner, it’s hard for you to increase your investment to acquire all of these resources. In this case, choosing a 3PL service provider will solve these problems.

3PL Pros and Cons

Although both 3PL and general logistics belong to the logistics category, 3PL is more professional and can undertake all of the logistics services provided by the latter. However, not all businesses are suitable for the 3PL pattern. This section lists the main benefits and disadvantages of 3PL in supply chains for your reference.

Advantages of 3PL

3PL companies have completed logistics service systems that can help you save time and money on logistics. They can provide suitable logistics schemes for your business at lower costs, faster services, and better quality.

In addition, 3PL in supply chains can provide you with more comprehensive logistics services, which many small businesses cannot realize in the short or even long term. This can help develop the logistics level you can provide to your customers, allowing you to focus on improving your business competitiveness.

By cooperating with experienced and reliable 3PL service providers, you can respond to market changes in a timely manner without the need to set up your own logistics institution. They can help speed up the process of launching your products on the market and customize unique 3PL solutions for your business.

Disadvantages of 3PL

Real-time inventory tracking may be limited, resulting in less control over the service experience of your customers.

You may have limited control over order fulfillment.

If there are any issues with your products in the 3PL warehouse or during delivery, it may not be convenient for you to inspect or deal with them.

3PL service providers are not responsible for any issues with your products, and you may need to solve them yourself.

The upfront investment may be high, especially for new businesses, as hiring a 3PL company for the long term means a high cost when you don’t have many orders.

FAQs about 3PL

1. Why is 3rd Party Logistics important?

Third-party logistics is a valuable tool for small and medium businesses, especially e-commerce sellers, to compete with large online platforms like Amazon. As Amazon commands the largest online market, businesses need to find ways to differentiate themselves. 3PL can help businesses optimize their shipping and fulfillment processes, while also reducing logistics costs.

2. Who needs 3PL Services?

Not all enterprises are suitable for 3PL services in supply chains. Based on the 3PL meaning and services above, we explain who needs 3PL services more in this part:

E-commerce sellers, especially small or new businesses: 3PL services can help e-commerce sellers integrate limited space and resources, allowing them to focus more on their products.

Medium-sized companies: With the help of 3PL, medium-sized companies can enlarge their size to satisfy their fast-growing orders. For example, their products can be delivered to customers in less time at more favorable prices, to develop their profitability.

Large Companies of Fortune 500: The types and sizes of 3PL companies are various; the larger the companies, the more possible they are to cooperate with 3PL. So many large companies would outsource their businesses to one or more 3PL partners to satisfy their different requirements. In this way, they can control costs and increase efficiency.

onestopimport can help you realize the same services as 3PL companies

3. How do you decide whether you need a 3PL company or freight forwarder?

It all depends on your business scale and requirements. If you just need to transport your goods from one location to another, freight forwarders are more suitable for you. If you want a partner to solve most steps in the process of your business with your own customers, a 3PL company will be better.

There are also 3PL service providers in different sizes now, and service ranges and items are different as well. You can choose the most suitable one according to your business scale.

4. What should you consider when choosing a 3PL service provider?

There is no absolute single standard for deciding whether a 3PL service provider is good or not, as businesses of different sizes require different services according to their real demands. We list some factors in this part for your reference to judge a 3PL company from different angles. You can decide the priority of these factors according to your actual business demand:

Location of the service provider
Security
Business scope and ability
Efficiency and quality
Scalability and flexibility
Reviews from its previous clients
Provided technology level

The End

We hope this post helps you understand 3PL better. If you want to know more about logistics or have any questions, please feel free to contact us.

We’re onestopimport, a leading sourcing agent in China. If you need 3PL services or want to import or customize products from China, please don’t hesitate to CONTACT US!

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A Quick Guide to 3PL: Third-party Logistics