By now, you’ve probably heard of third party logistics and what they can do for eCommerce sellers. But what are 3PLs, exactly? And why should you care? In this guide, we’ll break down everything you need to know about 3PLs and how they can help your eCommerce business. Keep reading to learn more!
Table of Contents
Third Party Logistics (3PL): What Are They?
Third-party logistics, also known as 3PL, describes outsourcing eCommerce logistics functions like inventory management, warehousing, and fulfillment to third party companies. eCommerce sellers can save so much time and effort to accomplish more with the help of third party logistic providers, thanks to the infrastructure and tools for automating retail order fulfillment.
The term “third party logistics” may not have been first used. But in the 1970s and 1980s, businesses started to increasingly outsource their inbound and outbound logistics needs to outside parties.
The term “3PL” has now become common. And 3PLs have increased the scope of their offerings, thanks to the development and growth of eCommerce in the 2000s. Third-party logistics is also used to describe the supply chain integration of warehousing operations and transportation services.
What Distinguishes CFA and 3PL From One Another?
There is a significant difference between the terms clearing and forwarding agent (CNA) and third party logistics (3PL), although they are frequently used interchangeably. A business known as a clearing and forwarding agent is in charge of the paperwork and shipping of goods between nations. They are responsible for ensuring the products are delivered to the proper location and clearing them through customs.
On the other hand, a company that offers complete logistics solutions is known as a third party logistics provider. This implies that they can manage every aspect, including fulfillment, transportation, and customer service. Although they can be included in a 3PL solution, clearing and forwarding agents and 3PL solutions are not the same.
1PL, 2PL, 3PL, 4PL, 5PL Defined
The 1pl, 2pl, 3pl, 4pl, and 5pl systems are a grouping for logistic providers. These categories describe how involved the company is in handling the client’s requests. This makes it easier to choose the right kind of offer to make sure the solutions put forth are sufficiently pertinent.
The services offered by 1pl, 2pl, 3pl, 4pl, or 5pl differ drastically. Therefore, a logistic provider can handle freight storage, product distribution, and raw material management. Additionally included in the services that some specialists offer are transportation related operations. This relates to choosing which transportation method to use, subscribing to insurance policies, and the framework for administrative obligations.
The logistic provider may also offer integration solutions based on its 1pl, 2pl, 3pl, 4pl, or 5pl categorization. Stock management, fleet or freight localization technology, or ERP software for specific situations.
Key Differences Among 1PL, 2PL, 3PL, 4PL, 5PL
As was already mentioned, the distinction between providers offering 1pl, 2pl, 3pl, 4pl, and 5pl services depends on how essential those services are to a company:
1PL: Fundamental subcontracting for nation wide transportation services, such as product distribution and loading.
2PL: The addition of warehousing and storage services to transportation services. This is generally carried out on the property of the assigned company.
3PL: This kind of provider provides specialized knowledge, consistent oversight, and effective communication, particularly regarding customs formalities. They also offer returns management.
4PL: These are usually consulting firms that provide integrated solutions to manage the logistics side of the supply chain. A 4PL provider also has additional resources devoted to digital tools alongside its 3PL resources;
5PL: The supplier provides engineering expertise and cutting edge, ground breaking flow automation systems.
The Procedure for 3PL Order Fulfillment
What happens in a 3PL fulfillment center might appear to be a mystery if you’re thinking about working with a 3PL provider or are new to outsourcing shipping.
The 3PL fulfillment procedure, however, doesn’t have to be mysterious and really shouldn’t be!
When a customer places an order on your online store and clicks “Submit Order,” what exactly happens at a 3PL’s eCommerce warehouse? Let’s examine the entire procedure from beginning to end.
Orders cannot be shipped by a 3PL without inventory on hand. In a 3PL warehouse, accepting incoming inventory and storing it are both considered “receiving.”
Every 3PL has unique procedures and room to receive and store inventory.
For instance, at Eva.guru, we require customers to complete a Receiving Order (RO) to specify which products and how many units we will receive. Due to our improved organization and punctuality in receiving, we are better able to begin quickly and effectively completing your orders.
3PLs store your products in 3PL fulfillment centers after they receive your inventory. Each SKU has a dedicated storage space all to itself, whether it be a shelf, a bin, or a pallet.
Storage capacities vary between 3PLs, not all 3PL warehouse space is created equal. Working with a 3PL that has more storage space than you need for your current inventory is crucial, as your product line and order volume expands, your 3PL storage must be scalable.
A 3PL is different from an on demand warehouse matching service, which merely finds you extra space in different warehouses without running any logistics centers.
The 3PL fulfillment process can start once a customer places an order. This is the first half of the expression “pick and pack fulfillment,” which you may have heard before.
Some 3PLs demand that you manually upload orders to their database. Sometimes, spreadsheets are used for this, containing information about orders, customers’ shipping, and more. It may be difficult and inefficient to manage orders in this way.
Other 3PLs have cutting edge technology that seamlessly integrates with your marketplace or eCommerce platform. These 3PL fulfillment software integrations streamline the fulfillment process for more automated shipping by bringing orders, shipments, inventory tracking and stock levels, and more into one location.
This includes immediately sending online customer orders to your 3PL after they are placed.
An order is assigned to the warehouse picking team when it is sent to your 3PL. A packing list of the items, quantities, and storage locations at the facility is given to the picker so that they can pick up the ordered goods from the appropriate areas.
Once every item in an order has been selected, it is time to pack it safely for shipping. Your 3PL’s capabilities, brand preferences, and shipped items will all affect the packing supplies used.
The most typical types of standard packaging materials are:
- branded boxes not
- bubble mailers
- bubble mailers bags
- wrapping paper
- dunnage made of paper
Packing supplies may be billed separately by some 3PLs or included in their fulfillment management services by others. The 3PL will select the best packaging materials as skilled shippers to safeguard your products and achieve the lowest practical dimensional weight. Additionally, they will optimize your packages so you won’t need to divide shipments. Dimensional weight is a method of calculating shipping costs considering the package’s size. Logistics costs can be reduced by using the proper packing materials.
Make sure you join forces with a 3PL that permits you to use custom packaging, such as custom boxes and inserts if you want your brand to be seen through your shipping. Branded packaging can leave a lasting impression on customers, especially since receiving a package is often their first in person meeting with your company.
Your order will be shipped after this. On your behalf, most 3PLs will buy and print shipping labels. While some 3PLs compare shipping prices from various carriers, others have favour carrier partners. The latter enables 3PLs to provide customers with the most competitive pricing for the delivery speed that each customer selects.
Orders are picked up from 3PL warehouses and shipped by carriers like DHL, USPS, and UPS. Each order’s carrier and shipping speed are determined by the 3PL’s policies and partnerships, as well as the client’s shipping options and the end user’s choice. When an order is shipped, 3PLs equipped with the integrated technology mentioned above will immediately send the tracking information to the online stores of the merchant.
Additionally, many 3PLs provide return processing services. If a customer returns order to your 3PL, they will process the return. Based on their policies and preferences, either restock the item or dispose of it.
You have the option of having your 3PL offer return shipping labels to your clients. Customers can easily track the status of their return order. And you won’t have to handle returns, which is fitting for both you and your customers.
What Obstacles Must Third-Party Logistics Overcome?
A few of the difficulties faced by 3PL businesses to succeed in the modern economy include fluctuating fuel prices, a talent shortage, poor teamwork, and shifting regulations:
Rising costs of fuel
Rising cost of fuel affects all companies that operate delivery services. Since high fuel costs can quickly reduce a company’s revenue, they constitute a significant portion of many businesses’ operating costs.
Discovering New Talent
Getting new talent into the field is one of the major issues it has. Many businesses lament the difficulty in filling open positions with qualified candidates because many lack the necessary training or experience.
The fact that there is a driver shortage in the transportation sector and has been for some time doesn’t help. The American Transportation Research Institute (ATRI), which conducts a yearly survey of industry participants to determine their top concerns, has consistently ranked driver shortage as one of its top five issues.
For 3PL companies, whose margins typically can’t withstand efficiency declines, the lack of qualified talent leads to a loss of productivity and efficiency.
Failure to Work Together
It is impossible to overstate the importance of transporters’ and carriers’ roles in supply chain management. However, their significance is frequently disregarded at the operational level. Carriers, shippers, and customers’ lack of cooperation harms the supply chain’s efficiency, to say nothing of their lack of communication or supply chain integration.
Rules of the Government
Majority of 3PL companies transport goods between different cities, states, and even nations. As a result, they are required to follow the laws and ordinances of these various areas. Government regulations differ from one city or state to the next, and 3PL fulfillment businesses must stay current and comply with all of these laws to continue operating successfully. As much 3PLs lack access to adequate human resources to manage and keep track of the changing and varying regulations, this is a difficult task.
Concerns about how transportation affects the environment are becoming more widespread. Players in the industry are concerned about local and state regulations against idling and emission reduction. If businesses don’t find a cost-effective way to cooperate, following these regulations may end up costing them money.
Meeting each client’s needs is a challenge many 3PL firms face because client requirements differ greatly from company to company. A major headache for 3PLs that haven’t kept up with technology is the growing customer demand for quick shipping and real-time visibility on delivery status.
There are no trustworthy reporting mechanisms.
Keeping track of all the shipments being sent out can be challenging for even mid-sized 3PLs. It can be challenging to ask vendors about shipments made to create a monthly statement. Because manually tracked inventories and shipments are prone to human error, the absence of a reliable reporting system can force 3PLs to absorb high labor costs and even revenue losses.
Looking for a way to take your online business to the next level? 3PL is just what you need. Thanks to the ever growing fame of eCommerce of course. 3PL providers have revised their offerings and structure to serve retailers of all sizes. Eva’s 5-star 3PL Logistics is here to help you boost your sales and smooth your fulfillment process. Eva is one of the pioneer Amazon advertising agencies with the perfect solution for your business.
Contact us today to learn more about how we can help you take your business to new heights!