Third-Party Logistics (3PL) Guide
If you are an ecommerce business owner, order fulfilment is an integral part of your operations. As your business grows, you may find that fulfiling customer orders in-house is no longer feasible.
That’s where third-party logistics comes in! This guide will cover everything you need to know about 3PL’s to decide if they’re right for you.
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What are third-party logistics (3PLs)?
Third-party logistics (or 3PL) refers to the outsourcing of ecommerce logistics processes to a third party business, including inventory management, warehousing, fulfilment, and often shipping. 3PL providers allow ecommerce merchants to accomplish more, with the tools and infrastructure to automate retail order fulfilment.
We don’t know for sure who coined the term “third-party logistics,” but companies began trending toward outsourcing inbound and outbound logistics services to third parties in the 1970s and ‘80s.
With the introduction and growth of ecommerce in the ‘90s and 2000s, the term 3PL has become ubiquitous, and 3PLs have expanded their services. The supply chain integration of warehousing operations and transportation services has become what we now call third-party logistics.
3PL vs. 4PL: What’s the difference?
When researching 3PLs, you may come across the term 4PL. A 4PL adds an additional degree of separation between ecommerce merchants and the 3PLs shipping their products: When a business contracts with a 4PL, the 4PL manages and arranges 3PL services for a client. This is sometimes called “double brokering.”
4PL companies often offer end-to-end supply chain management for a client, including 3PL services, manufacturing, inventory procurement, and more.
The 3PL order fulfilment process
If you’re considering working with a 3PL company or are new to outsourcing shipping, what goes on in a 3PL fulfilment centre may seem like a black box.
But the 3PL fulfilment process doesn’t have to be a mystery, nor should it be!
So what exactly happens at a 3PL’s ecommerce warehouse once a customer clicks “Submit order” on your online store? Let’s explore the entire process from start to finish.
A 3PL can’t ship orders without inventory on hand. The “receiving” of inventory in a 3PL warehouse refers to the acceptance of incoming inventory followed by its storage.
Each 3PL has its own processes and capacity for receiving and storing inventory.
For example, at ShipBob, we require clients to fill out a Warehouse Receiving Order (WRO) so that we know which products we will be receiving and how many units. This helps us stay organised and timely with receiving, meaning we can start fulfiling your orders more quickly and efficiently.
Once we receive your inventory, we store your items in our fulfilment centres. Each SKU has a separate dedicated storage location, either on a shelf, in a bin, or on a pallet.
Different 3PLs have different storage capacities; not all 3PL warehouse space is created equal. It’s important to work with a 3PL that has more than enough storage space for your current inventory — as your product line and order volume grow, your 3PL storage must be able to scale with you.
Note: A 3PL is different from an on-demand warehousing company that just matches you with excess space in miscellaneous warehouses without operating any logistics centres themselves.
When a customer places an order, it’s time for the 3PL fulfilment process to begin. (You may have heard the phrase “pick-and-pack fulfilment” before — this is the first half of that.)
Some 3PLs require you to manually upload orders to their system. Sometimes, this involves spreadsheets including order details, customers’ shipping details, and more. This can be an inefficient and complex way to manage orders.
Other 3PLs have sophisticated technology that integrates directly with your ecommerce platform or marketplace. These 3PL fulfilment software integrations bring orders, shipments, inventory tracking and stock levels, and more together in one place to streamline the fulfilment process for more automated shipping.
This includes automatically pushing customers’ online orders to your 3PL as soon as they’re placed.
When an order is sent to your 3PL, it is assigned to the warehouse picking team. The picker receives a picking list of the items, quantities, and storage locations at the facility to collect the ordered products from their respective locations.
When all items in an order have been picked, it’s time to get them securely packed for shipping. The packing materials used will depend on your 3PL’s capabilities, your brand preferences, and the items being shipped.
The most common standard packing materials include:
Some 3PLs will charge for packing materials as a separate line item, while others include them as part of their fulfilment management services.
As experienced shippers, the 3PL will choose the best packing materials to both protect your products and achieve the lowest practical parcel weight & size. They will also optimise packages so that you don’t have to split shipments.
Carriers charge different rates based not only on your parcel size but also weight. With the exact specifications dependent upon both the carrier and the parcel destination. Using the right packing materials can help keep logistics costs low.
If you want your brand to shine through your shipping, make sure you partner with a 3PL that allows you to use custom packaging, such as custom boxes and inserts. Oftentimes, receiving a package is the first in-person experience a customer has with your brand, so branded packaging can make a big impression.
The next step is shipping your order. Most 3PLs will purchase and print shipping labels on your behalf. Some 3PLs have preferred carrier partners, while others compare shipping costs from a variety of carriers. The latter not only helps 3PLs offer clients the most affordable pricing but the most flexible delivery options and customer choice. In addition, working with multiple carriers is a great way to mitigate against delivery service disruptions, whether driven from inclement weather, carrier labour strikes or as networks become busy at peak times.
Carriers such as DHL, DPD, Royal Mail, and Evri pick up orders from 3PL warehouses to ship. The carrier and shipping speed for each order depend on the 3PL’s partnerships and policies as well as the ship options offered by the client and selected by the end customer.
Once the order ships, 3PLs with the integrated technology mentioned above will automatically push tracking details to merchants’ online stores.
Many 3PLs also offer return processing services. If a customer returns an order by shipping it back to your 3PL, your 3PL will process the return and restock or dispose of the item depending on their policies and your preferences.
You can choose to have your 3PL provide return shipping labels for your customers. This offers convenience for both you and your customers; you won’t have to handle returns in-house, and customers can easily track the status of their return order.
8 most valuable 3PL services to look for
Beyond shipping orders, 3PL fulfilment services can vary depending on the provider you choose. Here are some of the most beneficial features and logistics services commonly offered by 3PLs.
Managing inventory involves much more than just warehousing your products. A 3PL should allow you to easily sync inventory with your online store, view real-time inventory levels at each 3rd party fulfilment centre, and proactively reorder inventory to prevent stockouts.
Once your 3PL receives and stores your inventory, you can check the quantity on hand and units sold per day for each product. This offers full visibility into what is available to ship to your customers at any given time.
Depending on your 3PL’s technology and workflows, you may also be able to push real-time stock counts back to your store’s website, so your customers immediately know if items are out-of-stock.
Express or Next-Day shipping
Consider the following stats:
- 73% of shoppers expect affordable, fast deliveries.
- 44% of online shoppers who abandon their shopping carts do so because of shipping and handling costs.
- 24% of customers have canceled an order due to slow shipping.
Combine these trends with the fact that the most popular online retailers offer next-day shipping and free shipping options, and it’s clear to see: Customers expect both fast and affordable shipping at the click of a button.
As we’ll cover in the next section, 3PL warehouse location can make or break your ability to deliver on customer expectations by storing inventory closer to your shipping destination. This is particularly important when shipping cross-border. Working with the right 3PL that has fulfilment locations in each of your major regions will allow you to ship quicker, cheaper, and avoid additional cross-border taxes and duties.
Third-party logistics service providers often have relationships with shipping carriers that allow them to negotiate discounted rates for their clients; however, for international shipments the biggest cost savings will come from distributing your inventory across fulfilment centres in different regions.
When working with a 3PL that has several warehouse locations, you can split inventory across fulfilment centres to ship each order out from the 3PL warehouse that is closest to your customer. This model is called distributed inventory. For example using a UK based fulfilment centre to ship to UK shoppers, and a European Union based location to ship to those based in mainland Europe.
With the right technology in place, 3PL companies can automate the order fulfilment process using powerful algorithms that route each order to the optimal fulfilment centre.
If your customers are geographically distributed across the globe, you will likely want to distribute your inventory to multiple fulfilment centres. This puts your inventory closer to your shipping destinations, meaning you can offer quick and low cost shipping for the majority of your customers. This is much cheaper than shipping everything from a single warehouse.
Distributing inventory won’t necessarily be cost-effective for everyone, especially if you don’t yet have a high volume of shipments. As your online business grows, however, having a network of fulfilment centres can help you efficiently reach more customers.
Splitting inventory across 3PL warehouses can also help you be prepared in the event that your orders can’t leave a particular fulfilment centre (for example, in extreme weather conditions). Distributing inventory also helps with inventory management: When you store products in multiple geographic areas, you will have backup stock if you run out in one.
B2B and DTC fulfilment
Finding a 3PL that can handle both B2C and B2B fulfilment can make your life easier if you utilise a multichannel logistics strategy. ShipBob’s B2B Fulfilment Suite enables merchants to sell throughout the entire B2B ecosystem, powering retail dropshipping (fulfiling orders placed on big box retailers’ websites) and wholesale shipping (including brick-and-mortar stores), which can connect with all the major retailers. In addition ShipBob also enables fulfilment across multiple marketplaces such as Amazon, which have their own stringent fulfilment requirements that can put a lot of pressure on those fulfiling on their own.
Whether it’s fulfiling subscription orders on your website, or selling in physical stores, you can use one 3PL to centralise multichannel inventory management and fulfilment, acting as your back end logistics hub.
3PLs can help your returns management process by handling returned orders and even integrating with returns software solutions to further streamline the experience for your customers. You may choose to have returns restocked, quarantined, or disposed of, while gaining the visibility into ecommerce returns.
Kitting & customisation
Creating an unforgettable unboxing experience can help your brand stand out from the competition and leave a lasting impression. 3PLs can help enable this in the following ways:
Custom gift notes
You can offer branded, personal gift notes to your shoppers via 3PLs like ShipBob and have them printed at pack — from the bride thanking their maid of honour, to the mum who misses her daughter — let your customers add heartfelt notes to their recipients.
Make a purchase memorable with custom packaging. 3PLs like ShipBob makes it easy for you to select packaging preference to find the right custom package size to use for any order combination, including custom boxes, custom mailer packaging types, and even branded inserts.
Customise how your inventory is prepared for customers with kitting, a value-added service provided by most 3PLs including ShipBob for actions like adding a sticker to every order, adding your branded dunnage to the order, constructing boxes, wrapping items, sealing items with tape, and much more.
Custom sender labels
Drive brand recognition at order delivery with shipping labels that come “from” your brand’s name. This helps create a best-in-class delivery experience from the moment your order reaches your customer’s door by adding your brand’s name (instead of the 3PL) on the top left of the shipping label that’s on the outside of the box. 3PLs like ShipBob offer this at no extra cost.
Advanced data analytics
Data can be a competitive advantage for brands. 3PLs like ShipBob offer free analytics tools packed with charts and deep insights to help you with everything from year-end reporting, to better supply chain decision-making (e.g., see how many days it takes your orders to be delivered, historical stock levels at any point in time in any location, average storage cost per unit, and much more). Visit ShipBob’s data page for an example of other transparent data 3PLs may provide to all.
Scale your brand across the globe with a 3PL that has a physical presence in several countries (and even cross-border solutions). In today’s convenience economy, 3PLs like ShipBob are committed to helping brands grow their brands globally in markets like the US, Canada, Australia, the United Kingdom, the EU, and more.
When all of a 3PL’s fulfilment centres run on the same warehouse management system, use the same SLAs, and utilise the same support team, you get a true international fulfilment solution with one login to manage all warehouses, orders, inventory, and more.
What are the benefits of working with a 3PL?
There are many benefits to outsourcing fulfilment to a 3PL. While different 3PL companies have different capabilities, all 3PLs offer solutions for managing inventory, packaging, and shipping, ultimately providing reliable logistics systems and helping to maximise profitability for a business.
1. Save time and money
By investing in a partnership with a 3PL, you eliminate the need to buy or rent the warehouse space, logistics operations, labour, and technology required for in-house fulfilment.
As your business grows, fulfiling orders yourself becomes more and more expensive. These costs include warehouse space, forklifts and other equipment, warehouse management software(WMS), recruiting and labour costs, workers comp, and liability insurance.
You also save time by outsourcing fulfilment tasks to a 3PL. Instead of spending time packing boxes, standing in line at the post office, or building out fulfilment infrastructure, working with a 3PL gives you time back to focus on more strategic initiatives, such as product development and marketing.
“Fulfilment isn’t our forte, and we don’t want it to be. We want to focus on adding products and growing our online community. ShipBob is an amazing partner to our strengths.”
Sara Moradi & Amir Nizancevic, Co-Founders of iVYVERDURE
2. Leverage industry expertise
As an ecommerce professional, chances are you don’t have the time to become well-versed in every detail of shipping and logistics. That’s where a 3PL comes in: staffed by ecommerce logistics professionals, your 3PL will be knowledgeable and up-to-date with the latest industry trends and complexities — so you don’t have to be.
3PL companies also have the technical resources and partner network — including marketing agencies, custom packaging providers, and more — that allows them to constantly improve supply chain efficiency and make supply chain optimisations to help drive ecommerce success.
3. Expand your reach
If you’re only selling in one region, you’re limiting your business’s potential. Working with a 3PL can help you expand your reach.
3PL companies have an expansive network of fulfilment centres that in-house fulfilment lacks. A 3PL with fulfilment centres in all major ecommerce markets will help you reduce the cost of shipping and transit time for orders.
“We want everyone to get their Ombraz in a few days or less with no duties at delivery. Our goal is to remove the barriers to purchase. Now, a customer can get their package without spending extra on duties and taxes after purchasing a pair of sunglasses. ShipBob has helped us extensively throughout the process and we look forward to accelerating our growth outside of North America.”
Nikolai Paloni, Co-Founder of Ombraz Sunglasses
How does 3PL pricing work?
3PL pricing depends on the 3PL’s pricing model and your business’s specific needs. Here are some of the most common 3PL costs.
|Onboarding costs||Costs to get 3PL fulfilment services and tech up and running.|
|Inventory receiving costs||The acceptance and storage of incoming inventory. Different 3PLs charge for receiving in different ways, including per-unit, per-pallet, flat rates, or per-hour.|
|Inventory storage costs||When you store your inventory at a 3PL’s fulfilment centre, you will be charged for storage space. 3PL warehousing fees can range from per-SKU or per-unit storage to a fixed fee for each bin, shelf, or pallet used.|
|Order pick and pack costs||Some 3PLs charge on a per-pick basis, meaning you pay a fee for each item included in an order. Other 3PLs, like ShipBob, don’t charge pick and pack fees for orders under a certain number of items.|
|Packaging costs||Some 3PLs will charge for packing materials such as boxes and airfill as a separate line item, while others include them as part of their fulfilment services.|
|Kitting costs||Kitting and assembly refers to any unique accommodations for the way in which items are arranged, or packed before shipping. Because this service is so specific to each client, kitting fees can vary.|
|Shipping costs||The amount a 3PL charges to ship an order from their fulfilment centre to your customer’s doorstep. Shipping costs take a variety of factors into account, including shipping speed, shipping zones, and dimensional weight.|
How ShipBob works
ShipBob works with thousands of brands across the globe to fulfil multichannel orders. To see if ShipBob is the 3PL for you, request a quote here. Once you fill out the form, you will get in touch with a rep who will help you understand if we’re a good mutual fit for your business.
From there, you can connect your sales channels, configure your shipping options, send us your inventory, and complete the setup of your store(s). Once all is ready, ShipBob can start fulfiling your orders. As soon as an order is placed, we pick, pack, and ship it — without you having to lift a finger.
Tracking is sent to your customer, and you retain complete control and visibility of your orders by status, watching them as they move throughout the process in real time, and understanding inventory levels, total costs, and ways to further optimise your fulfilment strategy.
Who should consider outsourcing their fulfilment logistics to a 3PL?
Nearly any ecommerce store — regardless of ecommerce platform, industry, or product category — can benefit from outsourcing fulfilment. Here are three signs you’re ready to outsource fulfilment to a 3PL:
1. You’re shipping over 100 orders per month
While there’s no magic number, if your order volume has increased and you can’t keep up, it’s time to outsource to shippers. It’s at the point when you’re asking friends and family members to help you pack boxes or you’re staying up into the late hours of the night just to meet demand.
This is a problem because you’re swamped by activities that don’t generate revenue, and it’s holding you back from achieving growth. And as you continue to grow, you will spend more time on fulfilment and less time running your business
Every hour you spend reacting to new orders that come in — packing items, printing labels, driving to the post office, waiting in line, and so on — you’re missing the opportunity to acquire more customers, develop new products, and launch marketing campaigns.
2. You’re running out of space to store inventory
As your order volume grows, you’ll need more inventory on hand at any given time. If you’re fulfiling orders from home, it can be hard to find the storage space. A 3PL warehouse can save you from a garage or living room filled to the brim with product — and arguments with significant others or roommates.
Outsourcing inventory warehousing and order fulfilment to a 3PL can help you stay organised and manage inventory more efficiently. You can also grow your product line without worrying about inventory storage limitations.
“ShipBob has given us increased visibility thanks to the dashboard that allows us to easily manage stock and orders. That wasn’t possible for us before. Our relationship with ShipBob has been a game-changer for Quadrant, and it’s made my life so much easier.”
Will Kerr, Apparel Lead at Quadrant
3. You want to offer free shipping
Amazon has made free 1-2 day shipping the standard for ecommerce. But if you’re self-fulfiling orders, offering free & quick shipping can take a huge toll on your margins – especially if you’re shipping internationally.
Working with a 3PL can make offering free & cross-border shipping more feasible and affordable for merchants of all sizes.
How to choose the best 3PL company
Partnering with a 3PL company may seem like a no-brainer by now — it can help your business save time and money, freeing up resources to focus instead on product development, marketing, and business growth.
However, when it comes to choosing a 3PL company to handle your online store’s order fulfilment, the options can seem endless.
It’s important to find a fulfilment company that you trust to handle your inventory, provide a positive customer experience, maintain high customer satisfaction, and ultimately help you grow your business.
“As a one-woman show, I was self-fulfiling dozens of orders each day out of my home office and packing boxes myself. I did not want to deal with fulfilment. I barely had any time to work on the creative marketing and branding side of the business. 50% of my time spent was packing boxes. Before ShipBob I would have been terrified if an influencer posted about our product, and an instantaneous 1,000 orders came in, I would have had no way to handle that. Now I am totally ready for that. I think the biggest benefit and joy of working with ShipBob is the blocks of uninterrupted time I have back. I feel so free today. It really takes the stress out as a lone wolf entrepreneur.”
Leonie Lynch, Founder & CEO of Juspy
Here are three paramount questions to ask a potential third-party fulfilment provider to make sure you find a partner that is a great fit for your business.
1. Do your needs require more than basics?
When outsourcing order fulfilment, consider looking for a solution that goes beyond the traditional pick, pack, and ship model. This means that, instead of only facilitating one isolated part of the fulfilment process, the 3PL coordinates with all aspects of the retail supply chain.
This modern approach to fulfilment can help your business make more informed decisions about supply and demand and give your customers a better overall experience.
2. How does their technology work?
One of the most important elements of choosing a fulfilment solution is finding technology that works not just for you, but with you. There are two main technological elements to look for:
- How the 3PL’s technology will connect to your online store(s)
- How the 3PL’s software helps you leverage data
These two elements make up what we call a tech-enabled 3PL. A tech-enabled 3PL is a technology company that has developed streamlined, integrated shipping and fulfilment solutions for ecommerce businesses.
In addition to traditional fulfilment services, such as warehousing, picking, packing, and shipping, the 3PL’s technology helps with everything from automation, order, and inventory management to tracking orders and managing ecommerce returns.
“For our ecommerce tech stack, we use ShipBob, Klaviyo, Shopify Plus, Recharge, and Gorgias. What I love is how they all work together to manage communications and the customer experience in a streamlined way.”
Michael Peters, VP of E-Commerce Operations at TB12
3. Where are their 3PL fulfilment centres located?
When it comes to considering a 3PL’s location, we aren’t just talking about where their headquarters or offices are. You also need to know how many fulfilment centres the 3PL owns and operates, as well as where each one is located.
This information will help determine if you can offer the fastest delivery and most affordable 3PL shipping options to your customers. As mentioned above, the number and location of 3PL warehouses can help inform your shipping strategy, including distributed inventory and two-day shipping.
Third-party logistics (3PL) FAQs
Why are third-party logistics important?
Managing the packaging and shipping of products by yourself can be difficult and costly. And with the ever-growing influence Amazon has on the retail market, ecommerce stores need to offer fast and affordable shipping if they want to compete. 3PLs specialize in supply chain management, helping these companies streamline the shipping process for cost-effectiveness and better logistic efficiency.
What is the difference between 3PL and a freight forwarder?
A freight forwarder coordinates with multiple carrier methods including air, rail or highway to ship goods from one destination to another. Freight forwarders manage the relationships and important tasks in the shipping process: from negotiating freight changes to preparing shipping documents, but do not actually move the freight itself. They act as a liaison between carriers and companies looking to ship their products. 3PLs handle the entire supply chain, including picking and packing, warehouse storage, as well as shipping.
When should you use a 3PL?
If your ecommerce store has experienced rapid growth within the last year, it may be time to consider working with a 3PL company. Often times, companies partner with a 3PL when they are looking to scale their business without wanting to build and maintain their own warehouse in-house. Instead, they will look to leverage the expertise of a 3PL company to handle all shipping logistics.
How do you measure 3PL performance?
Once you have selected a 3PL company to handle your shipping logistics, it’s important to continually measure for performance by looking at different KPIs. One shipping KPI includes the rate of returns due to shipping damage or error. This KPI ensures there is a continued focus on shipment quality and accuracy. Another important shipping KPI to track is on time delivery. This KPI provides insight into whether or not there is a bottleneck in the current fulfilment process that needs to be addressed to provide maximum efficiency.