Understanding Third Party Logistics Services: How They Work and Why They Matter

Third Party Logistics Services: What They Are, How They Work, and Why They Matter

📖 Estimated reading: 8 mins

Key Points

• Third party logistics (3PL) services are outsourced solutions that manage parts or all of a company's supply chain operations.

• They include activities like receiving, warehousing, inventory management, order fulfillment, transportation, and value-added services.

• Using a 3PL helps businesses improve efficiency, reduce costs, and focus on core activities such as product development and marketing.

What's Inside

• What are third party logistics services?

• How 3PL services work day to day

• Benefits of using a 3PL

• How to choose a 3PL

• Common FAQs

What are third party logistics services?

Third party logistics services (often called 3PL services) are outsourced logistics solutions. That means a company hires an outside partner to run one or more parts of its supply chain. These parts can include receiving, warehousing, storage, inventory, order fulfillment, shipping, and more. The provider supplies the team, the buildings, the trucks, the tools, and the know-how. Meanwhile, the customer can focus on making and selling products, while the 3PL handles the logistics. (Source: Provided research brief)

How 3PL services work day to day

Daily operations within a 3PL involve several key steps. At Shipping Bros, our typical processes include inbound receiving, where we verify and inspect incoming shipments from suppliers; putaway and storage, where items are assigned locations; and inventory control, maintaining real-time stock counts. Orders from your online store are processed through our system, which guides picking and packing. We add value-added services like branding inserts or bundling, then hand off parcels to carriers or book freight for larger shipments. Returns are processed efficiently, with inspection and restocking. (Source: Provided research brief)

• Inbound involves checking carton and pallet counts, inspecting for damage, logging data, and labeling pallets if needed.

• Putaway assigns SKUs to specific bins or shelves, storing items efficiently.

• Inventory is tracked live, with cycle counts and alerts for low stock to prevent shortages.

• Order processing involves picking, scanning, packing, and labeling for shipping.

• Shipping moves parcels to carriers like UPS, FedEx, USPS, or schedules freight pickups for larger loads.

Benefits of using a 3PL

Implementing a 3PL can lead to numerous advantages, including increased efficiency, lower operational costs, and the ability to scale quickly. A 3PL provides access to a broad network of carriers, ensuring faster shipping times and higher accuracy via advanced scanning and system checks. These providers also bring expertise in navigating customs and international shipping, which can be complex and time-consuming for in-house teams. As a result, companies can dedicate more resources to growth and product innovation. (Source: Provided research brief)

• Variable costs: Pay only for space and labor used, no fixed leases.

• Faster shipping: Inventory is placed strategically to speed up order fulfillment.

• Better accuracy: Scanning and real-time data reduce errors and stock discrepancies.

• Access to carrier discounts: Multiple carrier partnerships help optimize cost and speed.

How to choose a 3PL

When selecting a 3PL partner, evaluate factors such as product support, location, capacity, and integrations. Ask if they support your sales channels, whether they can handle your volume now and in the future, and if their systems connect seamlessly with your online store. Review their pricing structure, onboarding process, and references from current clients. A clear onboarding plan and transparent pricing are vital. (Source: Provided research brief)

Common FAQs

Q: How does a 3PL differ from a freight forwarder?

While freight forwarders focus mainly on arranging transport, customs clearance, and international shipping, a 3PL offers a comprehensive solution including warehousing, inventory management, order fulfillment, and last-mile delivery, making it a more integrated logistics provider.

Q: Is a 3PL right for my business?

Generally, a 3PL is ideal if you have high order volumes, need to scale quickly, or want to outsource complex logistics functions. Smaller or very niche operations may consider in-house fulfillment first.