Everything You Need to Know About Third Party Logistics (3PL)

Third-party logistics (3PL) is an order fulfillment method where businesses send inventory to an external logistics company that packs and ships orders.

3PLs give businesses a way to outsource inventory storage and fulfillment without dumping a ton of money into warehouse space, equipment, and labor costs. 

Table of contents

• How do 3PLs work?

• Advantages of 3PL

• Disadvantages of 3PL

• Who should use a 3PL

• How much does third-party fulfillment cost?

• The 5 Best Third-Party Logistics Companies

How do 3PLs work?

3PLs can handle most aspects of supply chain management, from managing inventory all the way to customer service. Fulfillment by Amazon (FBA) is a great example of this. Sellers use FBA to store and distribute their products from Amazon facilities. 

Typically, the fulfillment process begins when the 3PL receives your inventory in their warehouse and extends until the customers are satisfied with their purchases.

Receiving 

You are responsible for keeping adequate inventory levels in the warehouse by shipping your products straight to the 3PL warehouse. 

Picking and packing

Some 3PLs integrate directly with your sales channels. When you receive an order, the fulfillment process will automatically begin. Others require you to manually upload customer orders. 

Once the order reaches the 3PL, the warehouse-picking team will gather the items in the order and pack them in the most efficient way possible. Some 3PLs allow custom packaging, while others use generic shipping materials. 

Shipping

Most 3PLs have carrier partners to reduce shipping costs and will purchase and print your shipping labels for you. Some will require you to use their preferred carrier, while others compare costs from a variety of carriers to get the best rate. 

If the 3PL is integrated with your sales channels, tracking information will automatically be pushed to your online store once the package ships. 

Returns

When you receive a return, many 3PLs will process the return and restock or dispose of the returned inventory according to your policies. 

Third-party logistics advantages

• Lower expenses: Partnering with a 3PL bypasses the cost of buying or renting warehouse space, stocking it with equipment, and keeping logistics operations running smoothly. You can easily upsize or downsize as your needs fluctuate, all while taking advantage of the 3PL's discounted shipping rates.

• Less risk: Investing in a warehouse of your own is a huge financial commitment that you may want to avoid if your business isn’t stable enough to withstand a volatile market. Using a 3PL reduces that financial commitment and gives you the ability to adapt to market changes as needed.

• Scalability: Using a 3PL with a broad network of fulfillment centers makes it easier and more affordable to expand into new markets in regions outside your usual shipping zones. 

• Logistics expertise: Chances are, you aren’t a logistics expert. Using a 3PL allows you to focus your time and energy on the areas of your business where you shine and leave logistics to the pros. 

• Lower shipping costs: 3PLs may have access to better rates for postage and shipping materials.

• Relationships: 3PLs are more committed to cultivating a long-term, strategic relationship with your business than a transportation broker. This type of collaboration can improve outcomes. 

• Specialization: Some 3PLs specialize in a specific industry so they can provide advanced, niche expertise.

Third-party logistics disadvantages

• Information exchange: Adding a third party between you and your customers can make it harder to maintain transparency with your customers. If your 3PL doesn’t prioritize transparency, you may not have the information you need to reassure your customer when things go wrong. 

• Quality control: When you outsource fulfillment, you place the responsibility for quality control in the hands of your 3PL. You have to trust the fulfillment center to prevent errors and uphold your standards. 

• Reverse logistics: Not all 3PLs handle reverse logistics. Without a process for recouping the value of returned products, your profit margins could suffer. Complicated return policies also impact customer satisfaction.

Who should use a 3PL

If you are a small business looking for more storage space but are not quite ready to hire additional employees to fulfill your own orders, you probably aren’t ready to invest in a 3PL. Instead, opt for additional office space and revisit a 3PL when you are ready to outsource labor.

3PLs are ideal for:

• Small to medium-sized businesses with a current revenue between $1M and $10M, where distribution is not a core competency. 

• Retail businesses that are ready to invest in a warehouse, machinery, and staff but not ready to tie up their cash flow.

• Dropshippers hoping to increase margins and quality control on a product already selling well.

Avoid outsourcing fulfillment if you:

• Have limited cash flow and/or order volume.

• Sell highly customized, one-of-a-kind pieces that require separate SKUs in designated areas of a warehouse. 

• Aren’t ready to loosen the reins on quality control and customer communication.

How much does third-party fulfillment cost?

The average 3PL fee structure looks like this:

• Intake fees: $25-50 per hour.

• Storage fees: $5-$40 per pallet per month. 

• Pick and pack fees: $0.25- $3.00 per item.

• Shipping fees: Typically 10%-50% less than standard shipping rates.

Return processing and kitting fees are usually charged hourly. You’ll also pay a setup fee that could land anywhere between $100 and $1,000, depending on the size and complexity of your business.

And if you receive account management services like customer service calls, inventory updates, etc., you may also pay account management fees ranging from $75-$200 per month. 

The 5 best third-party logistics companies

1. Amazon Multi-channel fulfillment (MCF)

• Best for: Businesses of all sizes.

• Warehouses: 18 Tech Hubs and hundreds of fulfillment centers around the world. 

• Integrations: Shopify, BigCommerce, WooCommerce, Adobe Commerce, Wix, and more, plus custom APIs if you want to build your own.

• Partners: MCF's partners are extensive, and include Veeqo, Amazon's free shipping and warehouse management software

MCF is suitable for businesses that sell through their own ecommerce websites and other sales channels, while FBA is a complete, done-for-you service for Amazon sellers. 

On average, US Amazon sellers who use MCF and FBA increase their Amazon.com sales revenue by 38%. And despite the best efforts of other 3PLs, Amazon’s lightning-fast fulfillment performance is unmatched in the ecommerce marketplace, with an average “click to door” speed for your customers of 1.9 days. This is up to 50% faster than other providers.

2. ShipBob

ShipBob is an all-in-one solution for all your shipping and logistics needs. They support DTC and B2B fulfillment and are the fulfillment partner behind “Fulfilled by TikTok”. 

• Best for: Small and medium businesses.

• Warehouses: Over 30 warehouses.

• Integrations: Shopify, BigCommerce, WooCommerce, Squarespace, and more. Custom integrations are available through Developer API. 

• Partners: Partners in marketing, taxes, freight, financing, returns, customer support, and packaging. They also offer discounted shipping rates for FedEx, UPS, USPS, and DHL.

3. Omni Logistics

Omni Logistics is a global multimodal provider of air, ocean, ground, and warehousing services. They pride themselves on the ability to provide scalable capacity at a low per-unit cost. 

• Best for: Enterprise businesses.

• Warehouses: Over 100 warehouses in 21 countries.

• Integrations: Shopify, Magento, and more. 

• Partners: While its partners are unknown, Omni Logistics invests in logistics technology to facilitate efficient operations and navigate traditional logistics problems.  

4. Fulfyld

Fulfyld is a 3PL ecommerce fulfillment service for brands that seek a personalized approach to efficient fulfillment services. 

• Best for: Small ecommerce businesses.

• Warehouses: One warehouse in Alabama, USA.

• Integrations: Shopify, Magento, BigCommerce, eBay, and more.

• Shipping partners: While their partner network is limited, they offer discounted shipping rates for FedEx, UPS, and USPS. 

5. Kuehne-Nagel

Kuehne-Nagel offers logistics services for complex, global supply chains. The company is recognized as the #1 sea and air freight forwarder worldwide. 

• Best for: Enterprise businesses.

• Warehouses: Nearly 1,300 offices in 200 countries, including 195 United States offices. 

• Integrations: Custom EDI and API.

• Partners: Large, multi-industry partner network.

Further Reading: Why You Should Use Amazon Multi-Channel Fulfillment Over Other 3PLs

Using a 3PL can streamline your order fulfillment process

Using a third-party logistics (3PL) can be a savvy move for businesses searching for streamlined and cost-effective order fulfillment. By outsourcing the nitty-gritty tasks of inventory storage and order processing to external logistics experts, you get to dodge the hefty expenses tied to owning and managing warehouses.

And no matter what 3PL you choose, don’t forget you can still take advantage of Veeqo’s free order and inventory management solutions. With Veeqo's seamless integration with Amazon's MCF, the two used together can create a brilliantly efficient order fulfillment process. Sign-up now for free.