Contract Logistics vs. 3PL: What You Need to Know Before Outsourcing
July 27, 2021
Freight forwarders, contract logistics, 3Pls vs 4PLs, carrier partners, and so on…
With so many different types of third-parties, it can be a challenge to understand the ins and outs of outsourcing logistics.
But if you’re ready to outsource, it’s important to understand the services, capabilities, and roles of different logistics providers, so you can make the right decision on who to partner with.
So, let’s start at the beginning.
Contract logistics have evolved rapidly due to the rise of on-demand logistics, but they often get confused with 3PLs that offer a different set of capabilities. While these terms are used interchangeably by some, they can mean completely different things.
In this article, we discuss the differences between the two in detail, and what you need to know before you outsource logistics to a third-party.
What is contract logistics?
Contract logistic companies, which can be known as anything from consultants to freight forwarding providers, specialize in various points of the supply chain from the production line to delivery management.
Contract logistics don’t typically ship or manage inventory and fulfillment, but rather help with the management of domestic and international transportation. For example, they ensure that ecommerce inventory is delivered to where it needs be across the supply chain, and they act as the middleman between shipping companies and online retailers.
How does contract logistics work for today’s ecommerce landscape?
Contract logistic companies work in today’s ecommerce climate by planning, managing, and arranging transportation needs.
Since they work closely with major shipping carriers, they can negotiate transportation pricing, so the retailers benefit from the savings.
Furthermore, they help plan optimized routes, which enables faster delivery at an affordable price.
Contract logistics vs. 3PL: The key differences
What are the differences between a contract logistic company and a 3PL? While they tend to be confused for one and the same, 3PLs and contract logistics companies may have completely different or even complementary services.
While contract logistic companies typically help arrange transportation and routes, a 3PL company handles much more than just transportation; 3PLs provide a full suite of logistics services, from warehousing and order fulfillment, to inventory management and automated shipping.
Many 3PLs operate multiple distribution locations, so merchants can:
- Split inventory across distribution centers.
- Allocate inventory based on demand
- View inventory on hand in real time.
3PLs are an ideal logistics partner as they provide flexibility and visibility into the ecommerce supply chain, as well as offer technology integrations with ecommerce solutions (from inventory planning to freight shipping), enabling an end-to-end ecommerce solution.
At the same time, a contract logistic company may help manage the transportation to get bulk inventory to a 3PL from a manufacturer, whereas a 3PL typically arranges transportation for orders once they are fulfilled through the carriers directly.
The chart below displays how a 3PL differs from contract logistics, followed by a deeper dive into the difference services.
|Order fulfillment flexibility||❌||✅|
|Real-time shipment tracking||❌||✅|
|Tech integration availability||❌||✅|
1. Inventory management
Compared to contract logistics companies that only specialize in delivery and transportation, a tech-enabled 3PL’s software offers built-in inventory management that makes it easy to track inventory in real time, manage SKUs, and monitor inventory performance over time.
For instance, ShipBob is a 3PL that makes it easy to optimize inventory levels and restock on time by setting up reorder notification points.
“ShipBob’s analytics tool is also really cool. It helps us a lot with planning inventory reorders, seeing when SKUs are going to run out, and we can even set up email notifications so that we’re alerted when a SKU has less than a certain quantity left. There is a lot of value in their technology.”
Oded Harth, CEO & Co-Founder of MDacne
2. Delivery management
Contract logistics are ideal for overseeing the delivery management processes. However, 3PLs that operate multiple fulfillment center locations can help brands allocate product based on where there is more most demand.
3PLs also partner with major carriers, and even some partner with regional carrier partners to negotiate shipping rates, so they can pass the savings on to you and your customers.
Some 3PLs (like ShipBob) use logistics automation to find the most optimized route for shipments and automatically generate order tracking details to share with your customers, so you and your customers can track the last-mile delivery process.
“I was most impressed with ShipBob’s commitment to driving improvement and technology, which drives reductions in delivery time. I knew a shorter transit time was going to become more and more important.”
Michael Peters, VP of E-Commerce Operations at TB12
3 Warehouse management
3PLs use warehouse management systems (WMS) to ensure inventory is received, stored, picked, packed, shipped, and replenished in the most efficient way possible.
Unlike contract logistics, 3PLs use a WMS not only to streamline and improve internal processes in a fulfillment center, but to also provide merchants with visibility into the fulfillment process.
That way, merchants know which inventory is in transit, what’s on hand, and what items are being fulfilled.
For instance, ShipBob’s proprietary WMS provides visibility into the fulfillment process by allowing merchants to filter orders by status, location, and sales channel.
ShipBob also provides transparency into performance, which offers merchants peace of mind. From the ShipBob dashboard, merchants can view insights on fulfillment speed, order accuracy, shipping, and more.
“We are very impressed by ShipBob’s transparency, simplicity, and intuitive dashboard. ShipBob’s front-end software was the primary decision-making factor for me in choosing them over other fulfillment solutions.
Their software is so simple and intuitive, especially as so many 3PLs have either bad or no front-facing software, making it impossible to enter orders, keep track of what’s leaving or entering the warehouse.”
Harley Abrams, Operations Manager of SuperSpeed Golf, LLC
4. Order fulfillment flexibility
Unlike contract logistics, the right 3PL has the systems and processes to provide more flexibility over the retail fulfillment process.
For instance, ShipBob makes it easy for merchants to maintain control with access to a user-friendly dashboard that makes it easy to manage SKUs, create product bundles, manage subscription orders, and oversee B2B ecommerce orders.
“With ShipBob, we were able to mark any combination of SKUs as a unique bundle and select the component SKUs right through the dashboard.
ShipBob also allowed us to make changes to bundles on the fly with complete control and visibility, which is important in monthly subscription boxes, holiday bundles, and many more scenarios.”
Gerard Ecker, Founder & CEO of Ocean & Co.
5. Real-time shipment tracking
These days, customers expect real-time shipment updates on every order placed online. They want to know exactly when their orders is being processed, prepared, shipped, and when it will be delivered.
Partnering with a 3PL can ensure customers will receive order tracking notifications that will provide real-time updates generated by the carrier.
Keeping your customers updated is a great way to ensure satisfaction and retention.
“Our fulfillment is on autopilot.We can see our orders come in and get fulfilled in real time without any hiccups for the most part, which is great. ShipBob saves us so much effort, and the opportunity cost savings has been substantial.”
Yannick Crespo, Co-Founder & President of Pot d’Huile
6. Tech integration availability
By partnering with a tech-enabled 3PL, you’re given the ability to plug a 3PL’s technology into your existing or growing tech stack.
For instance, ShipBob’s technology integrates directly with all major ecommerce platforms, marketplaces, and solutions.
By integrating the leading solutions to ShipBob’s technology, you can easily establish a multichannel retailing and sell on multiple sales channels (including marketplaces like Amazon and Walmart), manage orders more effectively, enhance your returns management process, and more.
“Our tech stack consists of ShipBob and several of their partners including Klaviyo, Recharge, CrazyEgg, and Shopify Plus. These tools offer us sophisticated flows to drive revenue and maintain great relationships with our customers.”
Manuel de la Cruz, CEO at Boie
How to choose the right logistics option for your business
With all of this information, how will you know which service is best to choose from? Here is a deeper dive into which logistics option is right for your business.
When it makes sense to use contract logistics:
Pending the exact services needed, size of your business, and budget, a contract logistics agreement may be used for the exact stage of the supply chain you need help with, or for one-off services.
It may be worthwhile to utilize a contract logistics company if you are willing to handle everything else yourself – picking and packaging orders, tracking them, keeping track of your own inventory, and maintaining the warehouse.
If you have the time to market your business and handle the logistics when it comes to fulfilling orders, then a contract logistics company is right for you.
When it makes sense to use a 3PL:
If you find that most of your time is consumed with running your business and marketing, the best solution for you is to utilize the order fulfillment services of a 3PL company.
3PLs also provide the necessary infrastructure, technology, expertise, and support you need to stay competitive and meet customer expectations around fast, affordable shipping — which all supports your bottom line.
“Last July, Prymal reached $40,000 in revenue. After switching to ShipBob just four months later in November, we are reaching $160,000 a month in revenue — that’s 300% growth. We’re also saving $8,000 per month in fulfillment costs.”
Courtney Lee, founder of Prymal
ShipBob’s 3PL services for your store
ShipBob is a best-in-class 3PL that operates an international fulfillment network with premium technology and services.
With ShipBob, online brands have plenty of room for growth with access to a robust fulfillment infrastructure, a team of logistics experts, and a hands-on customer service team.
We also make it easy to get started. Once you’re connected to ShipBob’s technology, you can ship inventory to one or more of our fulfillment center locations.
As soon as orders are placed online, they are automatically sent to the closest fulfillment center location to be picked, packed and shipped.
“As we saw our small startup business beginning to gain traction, we needed to find a 3PL that could help us manage the thousands of orders we would get in minutes.
When I was researching companies, I knew they had to be tech-enabled, integrate with Shopify, and a company that could scale with us. We found exactly that with ShipBob.”
Jason Ton, CFO of 100 Thieves
To learn more about ShipBob’s premium fulfillment solution, click the button below to get in touch.
Contract logistics FAQs
Here are the top questions around contract logistics and how it differs from a 3PL.
Is contract logistics the same as 3PLs?
Contract logistics are different from a 3PL. Most of the time, contract logistics only assist businesses in setting up a courier to ship your package domestically and internationally. Everything else – fulfilling orders and packaging them – is up to the business.
3PLs, on the other hand, oversee the fulfillment process and provide access to multiple distribution centers and technology to support inventory management, faster fulfillment, and shipping solutions.
When does it make sense to use contract logistics?
If you are looking for a solution for delivery and transportation, a contract logistic company might be ideal. Contract logistics can help you manage your shipping and potentially give you lower rates, but you still have to oversee fulfillment and inventory management.
Do you save more money with a 3PL or with contract logistics?
In the long run, investing in a 3PL can help you save more money. Not only does it save you time to focus more on your business – whether in marketing or expansion – but it can also save you money that you would have to spend setting up your own infrastructure. It ultimately depends on your needs and the exact services you want to outsource.