In this ultimate guide to 3PL service providers you will find the answers to the following questions
- What is a third party logistics service provider?
- What services does a 3PL provide?
- What are the advantages and disadvantages of using a third party logistics service provider?
- How does a 3PL charge for its services?
- How can I find a suitable third party logistics service provider?
- What is the best way to evaluate and select a 3PL?
- What other factors should I consider before selecting a 3PL?
- After selecting a 3PL how should I manage the ongoing relationship ?
What is a Third Party Logistics Service Provider?
A third party logistics service provider is a company that provides other organisations with the services that are required to complete the logistics activities associated with the importation, order fulfillment and distribution of an organisations products to its customers.
What services does a 3PL provide?
The services provided by a 3PL include:
- International Freight Forwarding and Customs Brokerage Services
- International Courier Services
- Warehousing Services
- Domestic Transportation Services
International Freight Forwarding and Customs Brokerage Services
International freight forwarding and Customs Brokerage services include the activities related to the shipping of goods across international borders via various transportation modes and can include:
- Air Freight – via passenger or dedicated cargo airlines
- Sea Freight – via shipping lines
- Road – via cross border trucking companies
- Rail – via railroad operators
- Multi modal – using a combination of the above modes
Customs Brokerage Services include activities related to facilitating the import and export customs clearance of goods being shipped from one country to another and include:
- Preparing and lodging import and export documentation with the relevant customs authorities
- Calculating and paying any duty and taxes if applicable
- Providing advice in regards to import and export requirements
Examples of international freight forwarder and customs brokers can be found HERE
International Couriers Services
International couriers provide a door to door service for shipping goods across international borders. The door to door activities include:
- Pick up and delivery at origin and destination
- Customs clearance at origin and destination
- Shipping via Air Freight
Examples of international courier service providers can be found HERE
Warehousing services include the activities related to fulfilling customer orders as provided by a 3rd party logistics service providers and can include:
- Receiving and putting away inbound inventory ordered from factories and suppliers
- Storing and managing inventory prior to fulfilling customer orders
- Picking , packing and shipping orders received from customers
- Specialized services such as repackaging and relabeling of inventory to meet specific customer requirements – often refered to as value added services
- Receiving and managing goods returned from customers
Examples of warehouse service providers s can be found HERE
Domestic Transportation Services
Domestic transportation services include the activities related to transporting goods domestically – typically by road and can include:
- Picking up and delivering inbound inventory from ports, factories, or suppliers and delivering to warehouses for storage and subsequent order fulfillment
- Picking up and delivering outbound inventory from warehouses or other locations and delivering to customers to fulfill orders
Examples of domestic transport service providers s can be found HERE
What are the advantages and disadvantages of using a 3PL?
A brief summary of what we consider to be the advantages and disadvantages of using a 3PL for warehousing services are listed below – a more detailed explanation of each these items can be found at 3plmanager.com
Advantages of using a 3PL
- Operating your own warehouse requires significant upfront capital investment that is not required when unitizing the the services of a 3PL
- When operating your own warehouse a large portion of your costs e.g. leasing and labor are fixed but under the 3PL model the majority of your costs should be transaction based and you should pay only for the space and the services that you use or require.
- The ability to leverage expertise for new business requirements, process improvement and cost reduction opportunities is limited to the knowledge of your existing staff or immediate network when operating your own warehouse whereas there will be multiple sources of expertise and knowledge within the 3PL’s network
- The ability to scale in a timely manner can be restrictive when operating your own warehouse whereas a 3PL will typically have access to multiple sites in a number of different locations that can be utilized in a relatively short period of time
- Operating your own warehouse requires the ongoing management of staff (resource planning, training , occupational health and safety compliance and other human resource regulation) which become the responsibility of the 3PL in the outsourced model
Disadvantages of using a 3PL
- Operating your own warehouse provides greater control and more flexibility than usually achievable when unitizing the the services of a 3PL
- Operating your own warehouse is typically less expensive than engaging a 3PL to perform this function
How do third party logistics service providers charge for their services?
3PL service providers charges vary depending on the type of service being provided.
International freight forwarders charges include:
- Airfreight is charged by the kilo and is based on the greater of the gross weight or the cubic weight – cubic weight is calculated by multiplying the cubic measurement of the shipment by a factor of 167
- Seafreight is charged by the cubic meter (CBM) for less than container loads (LCL) or by the container for full containers loads (FCL). Container rates vary based on the size of the container. Containers are typically 2o ft and 40 ft in length.
- Freight Surcharges
- Port handling charges
- Air Port handling charges are based on a per kilo rate
- Sea Port handling charges are based on a per cubic meter (CBM) rate for LCL and per container for FCL
Customs Brokerage Charges include:
- Brokerage or agency fees for creating and lodging a customs entry on behalf of the importer of record and are typically flat rate per customs entry
- Additional fees are often charged if there is more than one supplier on the shipment or if there are many different types of items are being imported and the customs broker is required to identify and determine multiple harmonized system classification codes (HS codes)
- Compliance Costs
- Cartage fees if they have arranged collection from the port and delivery to the importers warehouse or other nominated location
- Cartage fees typically also include a fuel surcharge fee (FSC) which is normally based on a % of the actual cartage rate. Fuel surcharge fees are a charged to cater for a the variable price of diesel fuel and can rage from between 12% and 22%**
- Additional fees will be charged for the collection and delivery of full containers – these include arged for
** 2022 estimate
How can I find a find suitable 3PL service provider?
There a multiple sources available for finding a suitable 3PL service provider. The following is a brief summary of the sources we recommend – a more detailed explanation of each of these sources and how to best use them can be found at 3plmanager.com
- Search the internet
- Consult trade publications
- Refer to industry associations
- Ask your existing network
- Hire a consultant
- Refer to 3PL directories
What is the best way to evaluate and select a 3PL?
What other factors should I consider before selecting a 3PL?
There are many factors to consider before selecting a 3PL service provider. Start by seeking the answers to the following questions:
- Is the location suitable?
- Do they have the capabilities I require?
- Do they have a proven track record with similar businesses?
- What is their level of technological sophistication?
- What level of service can I expect to receive?
- How will the relationship be managed?
- What are their rates and are the they competitive in the marketplace?
- Are our organisations aligned in terms of cultural fit and business philosophy?
- What is their approach to on-boarding new customers?
- Will there be equality in the relationship?
- Are they financially stable?
- Can they grow with me?
After selecting a 3PL how should I manage the ongoing relationship ?