The Complete Guide to Third-Party Logistics: 3PL Explained
Greetings! And welcome to the kingdom of 3PL, warehousing, and third-party logistics companies. Spectacular terms, insights, and tips await you as we explore logistics solutions.
As a special treat, this journey features helpful illustrations, so it’ll be even easier to understand all the 3PL whys, whats, and hows. That is why you chose this quest, right?
To learn about third-party logistics and to understand—what is 3PL warehousing, and how it works. But most importantly…
You want to make sure you’re ready to work with a third-party logistics company, and use 3PL fulfillment services for your online store.
In case you’re in a rush, use the index below to get to the chapters that interest you.
What is 3PL?
3PL is a third-party logistics provider that involves 3 parties: a business owner (you), a carrier, and a logistics provider (3PL).
To give you a hypothetical example, let’s look at this made-up company, Crownords. They forge golden crowns and sell them at malls across America and online.
To make sure their crowns get delivered to customers and are always in stock at malls, Crownords partners up with a 3PL provider KnightFair. Then, Crownords sends their crown inventory to KnightFair. From there, KnightFair ships out crown orders that came from the Crownords online store and delivers inventory to malls. That’s the 3PL approach.
3PL providers offer a group of outsourced services to ease ecommerce logistics. Basic third-party logistics services and features include:
- inventory management
- order fulfillment (including picking and packing)
Advanced 3PL companies also offer:
- IT solutions
- customs clearance services
- returned product management
3PL vs. 4PL
4PL is a fourth-party logistics provider that connects 4 parties: a business owner (you), a carrier, a logistics provider (3PL), and a supply chain manager (4PL). 4PL providers don’t own any assets and solely focus on 3PL management.
Think of 4PL as an upgraded version of 3PL. Fourth-party logistics oversees all 3PL processes and functions as the only point of contact for the ecommerce business owner and other involved parties. 3PL, on the other hand, mainly focuses on handling logistical processes.
To give you an example, let’s check in with Crownords again.
Their business has blown up and they now sell their crowns in malls across the world. To ensure all their operations go through smoothly, they partner with a 4PL provider RoyalConnections.
Now, RoyalConnections is the only point of contact for Crownords to manage all business relations. RoyalConnections communicates with KnightFair (the 3PL provider), streamlines transportation with carriers, and develops new logistics strategies.
Fourth-party logistics services and features include:
- inventory and resource planning and management
- order fulfillment (including picking and packing)
- logistics strategy and shipping
- technology and infrastructure streamlining
- supply chain solutions and business project management
If you just need a logistics partner to store your inventory and ship out incoming orders, go with 3PL. If you need to establish an advanced logistics strategy, plan resources, manage your supply chain, or do even more, go with 4PL and they’ll get it done.
The other PLs: 1PL, 2PL, and 5 PL
To fully understand the magic of 3PL, let me tell you about all the other logistic provider types out there.
1PL is a first-party logistics provider that consists of one party—the business owner (you). You handle transport and logistics in-house.
For Crownords it means delivering their goods themselves.
2PL is a second-party logistics provider that includes two parties: a business owner (you) and a carrier. 2PL providers focus on transporting the business owner’s goods from A to B. Some 2PL also offer warehousing and handling services.
Crownords would use outsourced carrier services that would deliver their golden crowns to malls across America.
5PL is a fifth-party logistics provider that encompasses 5 parties: a business owner (you), a carrier, a logistics provider (3PL), and a supply chain manager (4PL), and a supply network manager (5PL).
5PL providers don’t own physical assets and just like 4PL, they manage logistics. But the main focus for 5PL providers is cost reduction.
5PL providers manage cost reduction by aligning logistics for multiple businesses at once. That way, 5PL providers combine the logistics demands in an efficient way and can negotiate cheaper rates from carriers.
As for Crownords, working with SupremeNetworks, a 5PL provider, helps them cut back on shipping costs.
Besides Crownords, SupremeNetworks also work with five other businesses that have similar logistics needs. Organizing logistics for those multiple businesses at once, comes down to reduced shipping costs and more efficient delivery times.
Crownords orders are now shipped out faster and more efficiently than when working with their 4PL provider RoyalConnections.
I promised you a simple guide to 3PL, so take a look at the illustration below where I outlined the differences between 1PL, 2PL, 3PL, 4PL, and 5PL providers.
Now let’s delve into the how-to part of 3PL and see how 3PL works.
How does 3PL work?
Think of 3PL as a baby dragon. Before you commit to owning one, you want to know how your life will change. Luckily, with 3PL, you won’t need to harness magical powers, seek mythical swords, or rescue damsels in distress.
Here’s how 3PL providers work:
1. Receiving: 3PL provider receives inventory
When reading about 3PL, you’ll come across the term “receiving”. It describes the process of transferring inventory to a 3PL warehouse, otherwise known as “receiving stock”.
So after you partner up with a 3PL provider, you’ll send them your inventory. In most cases, you have to fill out a receiving form on the 3PLs online platform to let the 3PL provider know that a shipment’s on its way.
Each 3PL provider has their own receiving form with required shipment information. In the receiving form, you’re most likely to fill in:
- Product name and its variants
Golden crowns in sizes S, M, L, and in gemstones ruby, emerald
- Product quantity
100 Golden crowns in S, emerald
- 3PL warehouse address
The location you’re sending the inventory to
- The materials you used to pack your shipment
- The way you packed your inventory
50 Golden crowns, size S with emerald gemstones in the first box, 50 Golden crowns, size S with emerald gemstones in the second box
- Shipment’s tracking number
The tracking number provided by the carrier you use for shipping your inventory
- Estimated date of arrival
Date provided by the carrier to estimate when the shipment reaches the 3PL warehouse
After you submit the receiving form, you then ship your inventory.
2. Storing: 3PL provider stocks and stores inventory
Your shipment reaches the 3PL warehouse. A warehouse specialist then processes the shipment. The manager accounts for each item in the shipment, and checks if the receiving form you submitted matches the shipment you sent.
After processing the shipment, the warehouse specialist stocks your inventory and stores it until it’s sold out or you remove it.
You get notified that your products are stocked, and you can sell them on your storefront.
3. Picking: 3PL provider picks items to fulfill orders
Once you sell an item from your stock, the 3PL provider then fulfills your customer’s order.
Picking is a term used to describe the process of preparing items for an order. A warehouse specialist receives information about the items needed to fulfill the order. The manager finds the items within the warehouse shelving, and picks the products to fulfill the order.
4. Packaging: 3PL provider packs items for shipping
After all the items are picked to complete the order, the warehouse specialist packs them for shipping. There are different packaging methods 3PL providers offer. The more common ones are:
1. Standard packaging
Most third-party logistics are white-label services. In other words, brandless services so your customers don’t have a clue about who your fulfillment partners are.
Usually, standard packaging will be a plain cardboard container with an attached shipping label. The label will include the recipient’s address and the name and address of your business.
When you send your inventory to a 3PL provider, you can pre-pack each individual item and mark it as already packaged. This would mean that the warehouse specialist shouldn’t use extra packaging (bubble wrap, poly bags) for your products.
When it comes to shipment packaging, the warehouse specialist would use either standard or custom packaging, depending on their services and your wishes.
3. Custom packaging
Go for custom shapes, prints, or other personalization touches for packaging. Some 3PL providers offer storing custom packaging and then using it to pack incoming orders. It’s a useful feature to elevate your customer’s unboxing experience.
There are 3PL providers that offer customizing packaging for you. For example, Printful allows you to add your logo to packing slips that are adhered to packaging. You can also write a custom message like Thank you for shopping with Crownords! and have it printed on the packing slip.
5. Shipping: 3PL provider ships items to complete orders
The final stage of completing an order from 3PL provider’s perspective is shipping. Once the order is packaged, the warehousing specialist ships it.
And that’s how 3PL works, in a nutshell. You send the 3PL provider your inventory, and they take care of stocking, picking, packing, and shipping. There are other features 3PL providers can have that make your life easier. More on those in the following chapter.
What features to look for in 3PL companies?
Generally, all third-party logistics providers have their own unique selling point with a specialized feature that others don’t offer. Think fairies: they’re all magical, but each has a different special power.
My best advice is to decide which 3PL features matter to you the most and look for those in the 3PL providers to choose from. The base features of a 3PL provider I’ll list below.
Inventory management interface
3PL provider keeps track of your inventory and you should be able to oversee it too. A well-designed user interface is a must. Most 3PL providers offer an inventory export feature so you can oversee your stock data in an excel spreadsheet.
Aside from a table to manage your stock, 3PL providers should also send out stock alerts to notify you if you’re running low or are already out of stock.
Ecommerce store integrations
Usually 3PL providers integrate with the more popular ecommerce platforms. When you research a 3PL provider, the first thing to check is if they support the ecommerce platform you built your store on. Look for a good mix of ecommerce platforms and marketplaces. That way, you can go with multichannel selling to reach more customers.
Automatic order fulfillment
Your 3PL provider will fulfill orders for you, but the question is—how will they receive the information about a new order?
Here’s the best case scenario. Your third-party logistics provider has an integration with your ecommerce store and automatically receives data about incoming orders and fulfills them asap. That’s automatic order fulfillment. Some 3PL providers offer a feature where you can manually approve each order.
With Printful, you have the choice to enable automatic order fulfillment or approve each order manually, no spreadsheets involved.
Warehousing in multiple locations
Think where your target audience is located. Do you sell mainly in the US? Just Europe? Or is your audience scattered all across the globe?
Look for a logistics company that has warehouses the closest to your customers. The closer your products are to your customers, the faster and cheaper your shipping is going to be!
If your 3PL warehouse fulfillment center is in your customer’s country, you get another bonus: no customs fees.
Third-party logistics providers, like ShipBob and ShipMonk have warehouses only in the US. Amazon’s warehousing program—Fulfillment by Amazon (FBA)—also has warehouse fulfillment centers only in the US. When it comes to 3PL in Europe, Huboo has a warehouse in the UK.
Where does Printful stand? In the middle! We have warehouse fulfillment centers in the US (Charlotte, NC, and Los Angeles, CA), Canada (Toronto, ON), and Europe (Barcelona, EU, and Riga, EU).
Shipping arguably impacts your choice of 3PL the most, and fast shipping is a must. But what’s considered fast?
ShipBob offers 2-day express shipping in the US. ShipBob delivers via ground transport and they have a vast network of fulfillment centers in the US.
FBA offers same-day delivery in the US. In select US locations, FBA ensures the customers receive their orders as fast as in 5 hours.
How does 3PL pricing work?
Each logistics company has their own pricing model. While some companies offer specific services, like receiving, for free, others charge for them. Your best bet is to compare costs of the 3PL providers you consider using.
The general fees of a third-party logistics provider consist of:
The cost of receiving stock covers unloading, unpacking, sorting, and placing products for storage in the warehouse facility. Some 3PL providers charge an extra if the products aren’t packed or pre-sorted according to their guidelines.
The storage fee is based on the space your products take up in a warehouse.
The 3PL provider will have a set price to use when calculating the storage fee. For example, $2 per cubic foot of storage.
3PL providers can have different prices based on the item quantity you store. Generally, the more products you store, the cheaper the price per cubic foot is.
When the amount of inventory doesn’t reach the base storage pricing level, some 3PL providers will charge a minimum storage fee. For example, Printful has a $25 monthly minimum.
The costs of order fulfillment can include picking, packing, and shipping. These fees are charged both per item and order.
Besides the above mentioned fees, some 3PL providers also charge for customer service, handling returned orders, and membership fees.
What are the benefits of working with a 3PL provider?
You have less to deal with. You’re the king and the 3PL provider’s your knight that does all the heavy lifting. There are multiple benefits of 3PL services, but I’ll name you the two most important ones.
Your products reach your customers faster
3PL providers have partnerships with shipping companies. Some 3PL companies even have their own shipping trucks and airlines. All that makes up for a more efficient shipping and a faster delivery. Even if you dash to the closest post office to mail your newly received customer’s order, you won’t beat third-party logistics shipping times.
You save time
Imagine the time printing out shipping labels, then picking and packing those shipments, mailing them, and updating your customers on the progress.
Not only could you save time, you could save on printer ink and fuel for driving to the post office to drop off your shipments.
So what could you do with the time you save? Oh, what couldn’t you! Focus on social media promos, new product development, store improvements… If you have more time for marketing, then high-traffic holidays like Black Friday and Christmas may bring in more sales!
In ecommerce, just like any other business, time is money. Save your time so you can save your money and make more!
While all of that sounds like music to your ears, you have to be sure partnering with a 3PL provider is the way to go for your business.
Who uses 3PL services?
You can use most 3rd party logistics regardless of the size of your business and how many orders you get. In addition, you can use 3PL services for the long haul or on an as-needed basis.
Most ecommerce companies start using 3PL services when they experience significant growth.
When you hustle all day and still don’t have the time to fulfill your customer’s orders, partner up with a 3PL provider. If you’ve already hired your own staff to help with fulfillment and realize the expenses are going out of hand, hire a 3PL provider.
Yes, 3PL services are expenses either way, but if you need to solve your logistics headaches, they are worth it. Ecommerce companies who want growth but don’t want to invest in technical solutions to accelerate it, also turn to 3PL providers.
Which are the leading 3PL companies?
The answer to this question depends on the website you found it. As for our favorites, here’s our top 3PL companies.
We like ShipBob because it’s easy to set-up and has a simple fee structure. They also have integrations with top ecommerce platforms. ShipBob regularly publishes blog content that you can read to learn more about fulfillment and ecommerce.
2. Fulfillment by Amazon
Amazon has one of the most advanced fulfillment networks in the world. Amazon is also one of the leading marketplaces in the world. And do you know how many people have Amazon Prime memberships in the US? 95 million. All those millions are your potential customers.
We like Amazon because it’s powerful in terms of delivery speeds and customer base. One drawback, though, is that when it comes to set-up and pricing, FBA is costlier than other 3PL providers.
3. Printful’s Warehousing & Fulfillment services
Printful’s warehousing services are on this list because of three reasons:
A. You can use one simple platform to manage all your print-on-demand and warehousing product orders.
B. You can ensure efficient, customs-free delivery times, and lower shipping rates because we offer warehousing in the US, Canada, and Europe (more locations to come!).
C. You can turn to Printful with any questions you may have, the chat is available 24/7.
Where does 3PL and your ecommerce business stand?
We’ve come to the end of this journey through 3rd party logistics. There’s no crystal ball to reveal if you should start working with a 3PL provider. Sad, I know.
But let’s try to figure it out anyway. Ask yourself:
- Do I have a steady stream of orders and an established business?
- Do I sell bulk manufactured items rather than vintage or one-of-a-kind items?
- Can I afford a 3PL?
If your answers were: “Yes. Yes. Yes!”, then start working with a 3PL.
And when it comes to choosing the right 3PL provider for your business needs, go with Printful’s Warehousing & Fulfillment. We have a straightforward user interface that’s perfect for beginners. You can reach your customers faster by storing your products both in the US and Europe.
And finally, with Printful, you can sell your own products together with print-on-demand items and manage all your store’s inventory in one place.