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When Do You Need a Third-Party Logistics (3PL) Company?

Pantero_3PL_229588943.2000xIf you're shipping freight, chances are you've come across the term 3PL. What is a 3PL? And how do you know if you need one?

What does 3PL mean, anyway?

No, 3PL is not C-3P0's lesser-known little sister. 3PL stands for "third party logistics," and 3PLs are an integral part of the freight shipping industry.

The Consumer Product Safety Improvement Act provides a legal definition of a 3PL:

The term third-party logistics provider means a person who solely receives, holds or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.

In other words, a 3PL ships your stuff, receives your stuff, stores your stuff or distributes your stuff, but ownership remains with you. They are merely acting on your behalf to manage the physical movement and storage of your goods.

Fifty years ago, 3PL primarily meant coordination of transportation and warehousing. These days, the industry has grown to incorporate a broad range of outsourced logistical services for every stage of the supply chain. 3PLs work to take the logistical burden out of shipping, warehousing, supply chain management, procurement and fulfillment.

A 3PL is not quite the same thing as a freight forwarder. A freight forwarder typically only negotiates pricing, transportation modes and routes with third party carriers on your behalf. They are an intermediary rather than an actual logistics provider. A 3PL is usually much more involved in the physical movement or storage of your goods.

What services do 3PLs offer?

Each 3PL has its own suite of service offerings. Some stick to a limited set of transportation and warehousing services. Others offer comprehensive supply chain management, distribution and fulfillment services. Some typical services include:

  • Transportation of goods (shipping): A 3PL can manage transportation of raw materials to your factories and finished goods to your warehouses or customers. They may manage a fleet of their own, negotiate and arrange for shipping through other third-party carriers, or both. 3PLs can also plan and coordinate freight consolidation strategies and global transportation logistics, including import, export and multi-model shipping.
  • Warehousing: Many companies use 3PLs for receiving and storage of goods, pick & pack, order fulfillment and returns processing. Companies using a 3PL for warehousing and distribution may turn over all aspects of material handling and fulfillment to their logistics partner so they don't have to worry about handling their physical products at all.
  • Information technology: Many 3PLs now offer a variety of IT services for ecommerce, customer relationship management (CRM), transportation management systems (TMS), warehouse management systems (WMS), order tracking and management, supply chain management, productivity tracking and more. Sophisticated software systems can provide increased visibility into the whole supply chain, customer experience or the physical movement of products. These tools can help companies better manage inventory and orders, optimize transportation strategies, manage a just-in-time supply chain and monitor costs and performance.

Do you need a 3PL?

3PLs have been around for decades, but they really started taking off in the 1990s. If you're a large established shipper, chances are you're using one already. But if you're an entrepreneur who is new to freight shipment, you may be wondering if it makes sense for you to engage a 3PL for your company.

Engaging a 3PL can offer many benefits for a growing company:

  • Optimization of shipping, warehousing, fulfillment and distribution services to better meet customer demand
  • The ability to scale operations or meet demand peaks
  • Cost savings or control
  • Access to state-of-the-art warehousing facilities and management software without making huge capital investments

In addition, 3PLs allow companies to focus on innovating, creating and selling their products rather than getting bogged down in the messy business of managing inventory and arranging cross-country shipping. Working with a 3PL makes a lot of sense for companies who want to focus on their products and their customers and leave the details of fulfillment to someone else.

Regardless of whether you're handing your own packaging and fulfillment or working with a 3PL, you'll need to make sure your products are correctly packaged before they go out the door. Our specialists can work with you or your 3PL provider to develop a packaging strategy that provides superior product protection, reduces waste and minimized shipping and material costs.

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