Logistics can make or break an ecommerce business. The ability to move products swiftly and accurately from — warehouse to customer — is crucial. 

Retailers are required to navigate complex supply chains, manage inventory, and meet customer expectations for fast delivery in order to prosper — and this is no mean feat. 

This is where third party logistics providers (3PLs) can help. By outsourcing fulfillment for your ecommerce business, you can unlock a range of benefits, and help simplify certain aspects of the way that you operate. 

This article provides a deep dive into 3PLs, covering the fundamentals and ensuring that you have a solid understanding to make informed decisions about whether outsourcing logistics is the right choice for your business. 

What are third party logistics providers?

Third party logistics providers (3PLs) are specialized companies that offer a range of logistics services to other businesses. These services typically include transportation, warehousing, and order fulfillment. 3PL providers act as intermediaries between manufacturers, retailers, and customers, ensuring that goods are stored, managed, and delivered efficiently.

The role of a 3PL provider goes beyond basic logistics. They often provide value-added services such as packaging, labeling, and quality control. By handling these aspects of the supply chain, 3PLs help businesses improve operational efficiency, reduce costs, and enhance customer satisfaction.

Choosing the right 3PL provider involves assessing the specific needs of your business and evaluating the capabilities of potential partners. Factors such as technology, infrastructure, and industry reputation play a crucial role in this decision-making process. With the right 3PL partner, businesses can achieve greater scalability, flexibility, and focus on their strategic goals.

A third party logistics provider (3PL) is a company that offers a comprehensive range of logistics services to businesses seeking to outsource various elements of their supply chain management. These services include, but are not limited to, warehousing, transportation, inventory management, order fulfillment, packaging, and freight forwarding. By utilizing a 3PL, businesses can leverage the provider’s infrastructure, technology, and expertise to optimize their logistics operations.

Key services offered by 3PLs typically encompass:

• Warehousing and distribution: This includes storage solutions, inventory management, and distribution of goods from warehouses to customers.
• Transportation: Management of shipping and delivery, including freight forwarding, carrier selection, and route optimization.
• Order fulfillment: Handling all aspects of processing orders, from picking and packing to shipping and handling returns.
• Value-added services: Additional services such as kitting, assembly, custom packaging, and quality inspections.

How have 3PLs evolved? 

The concept of third party logistics has its roots in the 1970s and 1980s when companies began to see the value in outsourcing non-core functions, particularly logistics and supply chain management. Initially, 3PL services were limited to basic warehousing and transportation. However, as globalization increased and supply chains became more complex, the demand for more comprehensive logistics solutions grew.

In the 1990s, the rise of information technology and the internet revolutionized the logistics industry. 3PL providers began to integrate advanced technology solutions, such as warehouse management systems (WMS) and transportation management systems (TMS), to enhance their service offerings. This technological advancement allowed for greater visibility, efficiency, and control over logistics operations.

The ecommerce boom of the 2000s and 2010s further accelerated the growth and evolution of 3PLs. With the rapid increase in online shopping, retailers needed scalable and flexible logistics solutions to handle high volumes of orders and meet customer expectations for fast delivery. 3PL providers adapted by offering specialized services tailored to the needs of ecommerce businesses, including same-day delivery, reverse logistics, and omnichannel fulfillment.

Today, 3PL providers continue to evolve, incorporating cutting-edge technologies like artificial intelligence, machine learning, and robotics to stay competitive and meet the ever-changing demands of the market.

What are the benefits of using third party logistics providers?

The benefits of 3PLs can be wide-reaching — ranging from cost efficiency, to increased scalability. 3PLs provide expertise that can be difficult to replicate in-house — especially for smaller ecommerce operations, or those who are highly international. Let’s consider some of these benefits individually: 

1. Cost savings

One of the most significant benefits of using a third party logistics provider is cost savings. By outsourcing logistics functions to a 3PL, businesses can reduce their warehousing costs. This is because 3PLs operate large-scale warehouses that serve multiple clients, allowing them to achieve economies of scale that individual businesses cannot. As a result, storage costs per unit are lower.

According to Mohammed Almuaibed, Logistics Operations Director at STC, “If logistics is not your core business, a third-party logistics (3PL) provider can save you money and time by leveraging their network to be closer to the customer at a lower cost.” 

Additionally, 3PLs can help businesses lower their transportation expenses. They have established relationships with carriers and can negotiate better rates due to the high volume of shipments they handle. Moreover, 3PLs optimize transportation routes and consolidate shipments, further reducing costs. 

2. Scalability, flexibility, and adaptability

Third party logistics providers offer scalability and flexibility, enabling businesses to adjust their logistics operations based on demand. During peak seasons, such as holidays or sales events, a 3PL can scale up operations to handle increased order volumes without the business needing to invest in additional infrastructure or labor. Conversely, during slower periods, businesses can scale down operations, minimizing costs.

This flexibility extends to handling seasonal demands and unexpected fluctuations in sales, ensuring that businesses can maintain efficient operations and meet customer expectations regardless of demand variability.

Adaptability is also a key benefit. As Philip Ho, Supply Chain Operations Deployment Leader at Cytiva, explains, “Adaptability becomes paramount, as [ecommerce] business dynamics change so fast that we can hardly keep up. Add in the proliferation of emerging technologies like AI into the fray, and being able to adjust to new operating conditions constantly becomes key to a robust supply chain.”  

3. Focus on core business activities

Outsourcing logistics to a 3PL allows businesses to focus on their core competencies and strategic activities, such as product development, marketing, and customer service. By delegating logistics functions to experts, businesses can allocate more resources and attention to areas that drive growth and competitive advantage.

Almuaibed confirms this, comment, “[3PLs] can utilize their expertise in inventory management, allowing you to focus on your core business.”

3PL providers bring specialized knowledge and experience in logistics, ensuring that these functions are managed efficiently and effectively. This partnership not only enhances operational efficiency but also frees up time and resources for businesses to innovate and expand their market presence.

What services do 3PLs offer?

Third party logistics providers offer a wide range of services designed to manage and optimize various aspects of a company’s supply chain. These services encompass everything from warehousing and transportation to order fulfillment and value-added services. By providing comprehensive logistics solutions, 3PLs enable businesses to streamline operations, reduce costs, and improve customer satisfaction.

1. Warehousing and distribution

Warehousing and distribution are core services provided by 3PLs. These include:

• Storage solutions: 3PLs offer scalable storage options to accommodate varying inventory levels. They provide secure, climate-controlled warehouses to ensure products are stored safely and efficiently.
• Inventory management: Advanced inventory management systems allow for real-time tracking and management of stock levels. 3PLs ensure accurate inventory counts, reduce the risk of stockouts or overstocking, and facilitate seamless order fulfillment.

2. Transportation and freight management

Transportation and freight management are critical components of the services offered by 3PLs. These include:

• Shipping services: 3PLs manage the entire shipping process, from selecting carriers to scheduling deliveries. They ensure timely and cost-effective transportation of goods to customers or distribution centers.
• Freight forwarding: 3PLs handle the complexities of international shipping, including customs clearance, documentation, and compliance with regulations. They coordinate the movement of goods across borders, ensuring smooth and efficient global logistics.

3. Order fulfillment

Order fulfillment is a vital service provided by 3PLs, encompassing:

• Picking, packing, and shipping orders: 3PLs manage the entire order fulfillment process. They pick products from inventory, pack them according to specifications, and ship them to customers. This service ensures accurate and timely delivery of orders.
• Handling returns and exchanges: 3PLs also manage reverse logistics, processing returns and exchanges efficiently. They handle the inspection, restocking, and disposal of returned items, ensuring a smooth returns process for customers.

4. Value-added services

In addition to core logistics functions, 3PLs offer a range of value-added services to enhance product offerings and customer experience. These include:

• Custom packaging: 3PLs provide specialized packaging solutions tailored to the needs of individual products or brands. This service ensures that products are protected during transit and presented attractively to customers.
• Kitting and assembly: 3PLs offer kitting and assembly services, where multiple products are combined into a single package or assembled into a final product. This service streamlines the supply chain and adds value by reducing the time and resources needed for product preparation.

How to choose the right third party logistics provider in 4 steps

Choosing the right third party logistics provider (3PL) is crucial for optimizing your supply chain and ensuring smooth operations. Here are key steps to help you make an informed decision:

1. Assess your needs

Before selecting a 3PL, it’s essential to identify your specific logistics requirements. Consider factors such as the volume of orders, the types of products you sell, and any special handling or storage needs. Determine whether you need comprehensive logistics services or specific functions like warehousing, transportation, or order fulfillment. Understanding your needs will help you find a 3PL that aligns with your business goals.

2. Evaluate 3PL capabilities

When evaluating potential 3PL partners, assess their capabilities in terms of technology and infrastructure, as well as their service portfolio. According to Clovis Martins, Purchasing and Foreign Trade Supervisor at Petropol Polímeros,  “The first step is to identify the capacity of the 3PL, this can be verified in an on-site approval audit to attest to the structure and competence of the service provider.” 

Specifically, you should consider: 

• Technology and infrastructure: Ensure the 3PL has advanced technology solutions, and that it integrates with vital solutions such as your inventory management software. Evaluate their facilities, including warehouse locations, capacity, and security measures.
• Service portfolio: Review the range of services offered by the 3PL. Look for providers that offer comprehensive solutions, including warehousing, transportation, order fulfillment, and value-added services. Ensure they can meet your current needs and scale with your business as it grows.

3. Check reputation and references

A 3PL’s reputation and references are critical indicators of their reliability and performance:

• Client testimonials: Request testimonials or case studies from current or past clients. These can provide insights into the 3PL’s strengths, weaknesses, and overall service quality.
• Industry reputation: Research the 3PL’s standing in the industry. Look for awards, certifications, and memberships in professional organizations. A strong reputation and positive reviews can indicate a trustworthy and capable provider.

4. Consider cost and value

While cost is an important factor, it’s essential to consider the value provided by the 3PL:

• Pricing models: Understand the 3PL’s pricing structure, including any hidden fees or additional charges. Compare costs with other providers to ensure competitive rates.
• Value-added benefits:  Evaluate the additional benefits offered by the 3PL, such as expertise, technology, and customer support. A slightly higher cost may be justified if the provider offers superior value and helps improve your overall supply chain efficiency.

What are the future trends in third party logistics?

The future of third party logistics (3PL) is shaped by several emerging trends that promise to transform the industry. Staying ahead of these trends can help businesses leverage 3PL services more effectively.

1. Technological advancements

Technological advancements are driving significant changes in the logistics industry, with AI and machine learning playing a crucial role. 

For example, AI and machine learning are enhancing various aspects of logistics, from predictive analytics for demand forecasting to route optimization for transportation. These technologies enable 3PLs to analyze vast amounts of data to predict trends, optimize inventory levels, and improve delivery times. Automation through AI-powered robots and drones is also becoming more prevalent, increasing efficiency and reducing human error.

2. Sustainability practices

Sustainability is becoming a priority for many businesses, and 3PLs are no exception. 

3PLs are adopting green logistics practices to reduce their environmental impact. This includes optimizing routes to minimize fuel consumption, using electric or hybrid vehicles, and implementing energy-efficient warehouse operations. Additionally, 3PLs are focusing on sustainable packaging solutions and reducing waste. These practices not only help protect the environment but also meet the growing demand from consumers for eco-friendly businesses.

3. Growth of ecommerce and omnichannel logistics

The explosive growth of ecommerce is a major driver of change in the logistics industry. 

The rise of ecommerce has led to increased demand for 3PL services as retailers seek scalable solutions to handle high volumes of orders. Omnichannel logistics, which integrates various shopping channels (online, in-store, mobile), is becoming essential for providing seamless customer experiences. 3PLs are adapting by offering specialized services such as same-day delivery, efficient returns processing, and robust inventory management across multiple channels.

Third party logistics providers: Unlock their full power with Linnworks

Third party logistics providers (3PLs) play a vital role in optimizing supply chain operations for retailers. They offer a wide range of services, including warehousing, transportation, order fulfillment, and value-added services, helping businesses reduce costs, improve efficiency, and scale operations. By understanding the benefits, challenges, and future trends of 3PLs, retailers can make informed decisions to enhance their logistics strategies.

As the ecommerce landscape continues to evolve, partnering with a reliable 3PL provider is more critical than ever. The right 3PL can provide the expertise, technology, and flexibility needed to meet customer expectations and stay competitive in a dynamic market. Retailers should consider the potential of 3PLs to transform their logistics operations and drive business growth.

On this journey, inventory management — including real-time visibility and advanced analytics — are more critical than ever. Explore how Linnworks can help you keep a finger on the pulse of your ecommerce business as you outsource to a 3PL. Book a free demo to discuss Linnworks in the context of your ecommerce business today.