What is 3PL? Everything You Need to Know About Third-Party Logistics

Regardless of the sales channel a brand uses to reach their shoppers (ecommerce, marketplaces, retail, wholesale, etc.), leveraging a 3PL is a strategic decision that can enable brands to grow their businesses and scale their operations. But what is 3PL and how can it help? 

3PL, or third-party logistics, is a service that allows brands to outsource their warehousing, order fulfillment, and shipping to a team of experts. Also referred to as fulfillment and distribution services, many brands feel relieved to let go of the stress of supply chain logistics. Outsourcing logistics can allow a brand to turn their focus toward what serves them best, including product development, marketing, merchandising, and increasing sales.

Third-party logistics services are in high demand. As a result of the ecommerce boom seen throughout the pandemic, many more brands and retailers have turned to 3PL providers. The third-party logistics industry is expected to reach a value of 1924.31 Billion USD by 2028. That’s a forecasted 9.10% increase between 2022 – 2028.

Third-party logistics is more than just warehousing. It’s connecting orders to deliveries, and the entire process in between. It’s no wonder why 90% of Fortune 500 retailers have partnered with third-party logistics providers; 3PLs provide the ability for brands to scale their operations by outsourcing their logistics.

In this article, we’ll cover everything you need to know about 3PLs, including:

What is 3PL?

3PL is third-party logistics, where a company outsources their logistics and distribution tasks. These services can include warehouse storage, picking and packing orders, shipping, final or last mile delivery, and/or reverse logistics.

3PL providers are specialized experts who help with the logistical challenges that can throw a wrench in an order’s workflow. For example, labor planning, equipment and technology requirements, shipping specifications (like customs, duties, and regulations for international shipments), delivery and route planning, and more. A 3rd party logistics provider not only keeps your shoppers happier – with quick and professional shipping – they are also integral to building a scalable business.

An infographic explaining how third-party logistics works, including icons for receiving, warehouse storage, fulfillment, shipping, delivery and returns.
How Third-Party Logistics Works

How does third-party logistics work?

You may be asking: How does third-party logistics work, exactly? There are seven main components to third-party logistics. Not all 3PLs provide each of these services. So when you’re looking for a 3PL, you’ll want to consider which of these services are critical for your business. 

Here is a breakdown of services provided by 3PLs:

1. Receiving

Receiving refers to a warehouse accepting your inventory. Most 3PLs require you to fill out an advance shipping notice (ASN), also known as a warehouse receiving order (WRO). This lets the 3PL know which products you’re sending, how many units, as well as other pertinent details to keep organized.

2. 3PL warehouse storage

3PL warehouse storage is the act of storing your inventory at the 3PL provider’s warehouse (also known as a 3rd party fulfillment center), rather than at your own place of business or warehouse. Some 3PLs partner with fulfillment centers that operate separately, while a vertically integrated third-party logistics provider, like GoBolt, operates their own warehouse.

As inventory arrives to the fulfillment center, it is organized and stored according to each individual SKU. Your inventory will be stored on a shelf, in a bin, or on a pallet, depending on each SKUs storage requirements. This not only helps to improve pick-accuracy, but also helps to efficiently make use of warehouse space.

3. Picking

When a shopper hits “order now,” the 3PL system will receive the order details, either manually through a spreadsheet upload or (ideally, with a modern 3PL partner) automatically through software that integrates with your brand’s ecommerce site or order management system.

Once the order details are received by the 3PL provider, the order gets assigned to a warehouse picking team. At this time, a pick list will be generated outlining line by line each SKU that needs to be picked and packed. The warehouse team will proceed with the order fulfillment by selecting the SKUs as outlined on the pick list from their various locations within the warehouse. 

4. Packing

Next, the warehouse team will pack the order according to your brand’s specifications. This can include packing the order in a box, envelope, bubble mailer, etc.. The warehouse team will optimize the packaging in order to reduce dimensional weight and combine packages to avoid split shipments which helps reduce costs and carbon emissions. 

Packing an order is not a place to cut corners—it’s a crucial part of the customer experience and reflects upon your brand. A great 3PL partner will allow custom packaging (like gift wrapping), inserts (like a thank you note or coupons for repeat purchases), and offer a range of sustainable packaging options (like packaging made from recycled or biodegradable materials).

5. 3PL Shipping

Once the order is packed up, the 3PL provider will make the final preparations for shipping the order. This can be either through a carrier partner, like USPS, Canada Post, or DHL, or through their own fleet. Your 3PL partner will typically purchase and print the shipping labels on your behalf.

3PL shipping speeds will vary from one provider to the next. There are many factors to account for when it comes to how quickly an order gets shipped and delivered. Some of these factors include the service level agreement between the 3PL and the brand, as well as what shipping options are available to the shopper at checkout (for example 5-7 days, next-day, same-day, etc.).

Ideally, the shopper can track the status of their order once the order is shipped, either through the 3PLs technology or via delivery updates from the carrier of choice.

Each 3PL will use a slightly different shipping process workflow, so it’s essential to make sure it’s compatible with your brand’s expectations and requirements.

6. Delivery

Some 3PLs offer last mile delivery as part of their vertically integrated services. This end-to-end logistics model can vastly improve the overall 3PL experience for brands. With this simplified logistics solution, brands work with just one logistics partner from order generation to final delivery.

7. Returns

Finally, some 3PLs handle returns and exchanges, also known as reverse logistics. Many 3PLs can provide shoppers with return shipping labels as well as a few options for handling returns. These include:

  • Restocking the returned item: the 3PL provider will receive the return, restock the item, and update your inventory to put the product back into circulation for another shopper to purchase.
  • Disposing/recycling the returned item: according to your preferences, and the services offered by your 3PL, you may choose to have the returns disposed of, or reroute the returned goods to community members in need. 

What is the difference between 3PL vs 4PL?

Fourth-party logistics (4PL) takes it one step further than 3PL. It involves outsourcing all of the logistics in your supply chain, including the 3PL portion. Sometimes referred to as double-brokering, 4PLs will often act as intermediaries between multiple 3PLs to keep your business operations running as smoothly and profitably as possible.

What does a 3PL cost?

The true cost of logistics is different for every brand. Costs will depend on your product, the volume of your business, and shipping distances, among other things. 

But what does a 3PL cost? The fee structure of 3PLs is typically modular, with packages ranging in price based on a variety of factors. 

As a starting point, you can expect to pay for each of these components:

  • Receiving and intake fees. You’ll be charged each time you send inventory to the 3PL warehouse for the administrative work and labor required to process and put away your inventory.
  • Storage costs. You’ll be charged a fee based on how many items or how much space your inventory takes up. For example, storing bed sheets is cheaper than storing bed frames.
  • Order fulfillment charges. You will be charged a pick fee and additional fees for custom packing processes or additional inclusions (e.g. gifts with purchase, handwritten thank you cards, etc.).
  • Packaging costs. You’ll pay for packaging materials, which may include packing tape, envelopes, boxes, bubble wrap, etc.
  • Shipping costs. You’ll pay each time you ship an order to a shopper. Most 3PLs have relationships with carrier partners to pass on a discounted shipping price.
  • Kitting costs. You’ll typically be charged a fee for any kitting or assembly that’s required.

3PL advantages and disadvantages

While some companies use 3PLs to reduce logistical headaches and support their business growth, it’s not the right decision for every single business. Consider these advantages and disadvantages before you make your decision.

Advantages of a 3PL provider

1. Less expensive than in-house

The upfront costs of running your own warehouse is costly. You have to pay for space, labor, equipment (such as forklifts), packing materials, insurance, and the list goes on. Outsourcing the operation tends to offer significant cost savings. Since 3PLs represent multiple brands, it gives them the bargaining power to negotiate bulk discounts on your behalf with shipping companies.

2. Flexible – Scale usage up and down

Many businesses experience some degree of seasonality. For example, October through December is peak season for consumer goods. 3PLs allow you to invest more capital during peak and pull back during shoulder season.

Since there’s less overhead, it’s very easy to turn spending up or down to accommodate your business’ varying needs.

3. Better geographic diversification

Most 3PLs have a wide network of fulfillment centers that allow you to store your inventory in different locations. Making use of geographic diversification, or a distributed warehouse network, allows you to store products and ship orders closer to where your shoppers are placing their order. This results in faster click-to-delivery times, lower costs, and reduced carbon emissions.

4. Accommodation of special requirements

Some 3PLs can help accommodate a wide variety of shipping needs and special requirements. Let’s say you sell home decor items. If you’re shipping fragile mirrors, you’ll need your items handled with care. Similarly, if you’re selling large and hard-to-handle furniture, you’ll need a 3PL that specializes in handling big and bulky shipping (and returns). 

5. Run tests in new markets

If you’ve got loyal customers in the U.S., but are wondering if Canadian folks will latch onto your product, 3PLs give you a less risky way to experiment in new markets. Instead of buying or renting your own warehouse space, you can work with a 3PL that ships to both countries and gain access to this market flexibility.

6. Free up more time for higher-value tasks

There’s a significant opportunity cost if you spend your precious time doing menial tasks that you could outsource. 3PLs allow you to use more of your time talking to shoppers, innovating and creating new products, expanding your product line, etc.

7. Faster delivery and a better customer experience

These days, most consumers expect lightning-fast delivery. In fact, over 50% of global shoppers say the speed of delivery influences their purchases. A dynamic 3PL can pave the way for a great logistics experience, and this includes helping you to keep up with rising consumer expectations for quick delivery. 

8. A better customer experience

Today’s consumers expect a top-notch shopper experience, from order placement to final delivery. A great 3rd party logistics provider will be an extension of your team. This includes acting as an arm of your customer support. The importance of this can’t be understated, since over 80% of consumers said they would walk away from a brand after three (or fewer) bad experiences. 

Disadvantages of 3PL providers

1. Less control

If a disgruntled shopper calls you and wonders where the shirt they ordered two weeks ago is, you’ll have an extra layer of folks to go through to get to the bottom of the issue. Some 3PLs handle customer service for you, but it also means you’re a little further removed from the crux of various issues that may arise. 

On the flip side, working with a vertically integrated 3PL can help give you more control over the customer experience. With a single logistics provider that manages all the 3PL aspects, from fulfillment to final delivery, you’ll be able to respond to customer inquiries faster.

2. Further from the physical product

It can be tough to address quality-control issues if you’re not geographically near all of your fulfillment centers. While it’s advantageous for the business to have fulfillment centers in many different cities, it also means it’s harder to show up on-site and inspect your products right away.

3. Cost

In hiring a 3PL to manage your logistics, you may have less control over some of the costs associated with the fulfillment and shipping process. Some fees that may be out of your hands can include carrier fees, packing and shipping material costs, labor costs, etc.

How to find the best 3PL provider for your brand

You may need to talk to a handful of different providers before you decide which is the best one for your brand. To evaluate which 3PL provider is right for you, here are some questions you may want to ask:

  • Do they have the capacity to handle more volume if and when you scale your business?
  • Are they able to sync inventory with your online store? Do they offer integrations with other key platforms in your tech stack?
  • Can you view real-time inventory levels at each third-party fulfillment center so you can proactively reorder inventory to prevent stockouts?
  • Will they provide data on fulfillment KPIs like rate of returns, damage rate, or average delivery time?
  • Do they have fulfillment centers in markets near your shoppers in order to provide quick, affordable deliveries?
  • How many shipping options and carriers are available?
  • Do they offer discounted shipping rates?
  • What does their post-sales customer experience look like?
  • Do they offer sustainable logistics solutions that align with your brand’s sustainability goals?

Top 3PL services

3PLs offer a variety of logistics services, ranging from receiving, warehouse storage, picking, packing, shipping, final delivery, and returns. Below are some of the key services that top 3PL providers offer.

3PL Systems:

Warehouse management

When it comes to 3PL warehouse management systems, having a 3PL provider on your side has many benefits. One of these is optimized inventory placement to facilitate a seamless (and more efficient) fulfillment process. Having a 3PL look after your warehouse management also amounts to savings for your business. This includes savings on large overhead costs, like leasing or buying your own storage space, labor costs, insurance, equipment, and more.

Inventory Management

Proper management of your inventory is critical for a number of reasons. On a basic level, it allows you to keep an accurate track of your stock counts. It also helps you avoid spending more time (and money) on inventory management tasks such as locating missing stock and recounting stock. 

A modern 3PL with advanced technology will go a few steps further. This could include greater accuracy with real-time access to inventory updates and more meaningful business insights through inventory data analysis.

Distributed inventory network

Finding a 3PL with warehouse facilities in your key markets is a great way to optimize your inventory storage. This will allow you to store your products in locations closest to your shoppers. Taking advantage of a distributed inventory network not only reduces shipping times but also helps facilitate shorter shipping routes. These are great benefits for your bottom line and your sustainability efforts.

Order fulfillment

Order fulfillment is a crucial part of third-party logistics. Once the orders are received by the 3PL system, the fulfillment team picks and packs the orders efficiently and accurately. 

A reliable 3PL partner will aim for a high pick accuracy, such as GoBolt’s 99.9% pick accuracy rate, and service level options around fulfillment times, like same-day and next-day fulfillment. 

Custom packaging

Custom packaging goes a long way when it comes to making a great impression on your shoppers and helping to exceed customers’ expectations. Finding a 3PL partner that will accommodate custom packaging can really help elevate your brand image. 

Custom packaging can include things like a sticker on the box, thank you notes, ensuring the materials they are using are sustainable, or other specialized touches that align with your branding. 

Shipping

Fast, free shipping has become increasingly important to today’s shoppers. 84% of consumers made a purchase specifically because shipping was free, while 77% will abandon a purchase because of unsatisfactory shipping options.

Look to find a 3PL partner that will work with you to find a shipping solution that aligns best with your brand. Whether that’s bringing your own shipping account or selecting from one the 3PL already works with, such as ShipEngine, EasyPost, Parcll, or Freightcom. This will allow you access to greater savings on shipping and the ability to reach more shoppers.

Order tracking

When it comes to tracking orders, shoppers are looking for transparency. They want to know that the order has been received, when it’s shipping out, and when to anticipate it arriving at their door. As we’ll touch on in a bit, working with a 3PL that uses modern technology will help give your shoppers further insight into their order’s journey, including real-time updates.

Last mile delivery

Not all 3PLs provide last mile delivery as part of their services. If end-to-end logistics is something that is important to you, you’ll want to search for a 3PL that owns their own fleet and can deliver your products to their final destination.

It may also be important to ask what their delivery schedule is. Do they operate during business days only, or 7 days a week? 

In addition, do they offer transparency into delivery status, timing of executions, and proof of delivery including photos and signatures? 

Finding a 3PL last mile delivery partner that aligns with your brand and your shoppers’ expectations is important.

Reverse logistics

Allowing shoppers the flexibility to change their minds is paramount to stellar customer service. Some 3PLs can assist with returns management with your specifications in mind. 

For example, the GoBolt Merchant Portal gives brand’s the customizability to set return preferences, such as: 

  • Re-selling non-damaged goods, recycling, or donating;
  • Selecting a preferred warehouse for returns (which can be overwritten on a per-return basis);
  • Visibility on the statuses of return orders via a dashboard. 

Modern 3PL technology

Not only does technology help evolve operations and improve data analysis, it helps create a better fulfillment and customer experience. That’s why you’ll want to look for a 3PL that can help bring you into the next era of third-party logistics, which is all about technology and optimization.

Sustainable logistics

Brands play a powerful role in influencing sustainable logistics. One in four shoppers say they are planning to pay more attention to environmental issues and social aspects in their shopping behavior. Given the rising importance of sustainability to shoppers, it’s critical to understand how your 3PL is prioritizing sustainability. 

Third-party logistics providers have many opportunities to work with a brand to make a positive environmental impact. This can include:

  • Using sustainable packaging in their fulfillment process;
  • Utilizing electric vehicles in their delivery or carrier partner fleets;
  • Managing reverse logistics with the environment in mind (like diverting returned items from the landfill).

How is GoBolt different from other 3PLs?

GoBolt is a technology company building the first sustainable and vertically integrated supply chain network. GoBolt partners with brands to deliver a complete end-to-end shopper experience.

By operating as an extension of a brand, GoBolt provides a simplified, customer-centric approach to fulfillment, last mile delivery, and reverse logistics.

What does this all really mean? Here are a few things that set GoBolt apart from other 3PLs.

A vertically integrated 3PL

Having a single logistics partner allows brands to respond to their shoppers faster. GoBolt’s proprietary technology, combined with a fully owned and operated transportation fleet, and network of warehouses, allows you to scale your operations as needed.

Modern 3PL technology

GoBolt’s in-house engineering team has built a suite of proprietary apps to help brands reduce support costs, and gain visibility for you and your shoppers. 

Customer-centric 3PL

GoBolt serves as an extension of your company and partners with you to fully understand, optimize, and simplify your logistics. GoBolt keeps the shopper top of mind, from order generation to delivery. 

Sustainable logistics

GoBolt has a deep commitment to sustainability. GoBolt’s mission is to provide carbon-negative deliveries by the end of 2023.

Discover what our customer-centric, partner-first approach will mean for you and your customers.