What’s more important for e-commerce businesses than making a profit? If you ask a few, we bet most of them will answer customer satisfaction. And nothing makes your customers happier and more satisfied than delivering their favorite products. However, supply chain management isn’t that easy, especially for businesses that are just starting out. Even minor mistakes in logistics can lead to damaged customer experience and stagnated business growth. That’s probably the reason why companies are increasingly outsourcing their logistics and fulfillment to 3PL or third-party logistics providers. But what’s basically is 3PL? Let’s find out!

3PL (Third-party Logistics) is a logistics outsourcing model often used by businesses to manage and improve their supply chain operations, such as warehousing, transportation, inventory management, order fulfillment, and freight forwarding. The increasing demand for online shopping and faster delivery has led to the immense popularity of 3PL services. This logistics outsourcing model benefits businesses facing complex logistics and supply chain challenges. 

In this article, we will put our expert insight into 3PL to help you understand this logistics business model more precisely. So, let’s get started!

What is 3PL (Third-party Logistics)?

3PL is a logistics service model that helps businesses outsource their logistics and supply chain operations to third-party service providers. The 3Pl service providers operate warehouses across the globe and often have a large transportation network. 

Here’s what 3PL can do for an e-commerce business – 

• Storing products at different locations 
• Inventory management 
• Picking, packaging, and delivering customer orders
• Coordinating shipments through rail, air, road, and sea transportation.
• Offering a centralized software for order tracking. 

Businesses partner with 3PL providers to improve efficiency and reduce costs. Instead of managing global warehouses, you can store your products in a 3PL provider’s warehouse and get them shipped directly from your manufacturers. 

The Current State of the 3PL Market

The market for 3PL service providers has grown steadily with the exponential growth of e-commerce. According to Straits Research, the revenue from the global third-party logistics (3PL) market was worth $1239.33 billion in 2024 and is expected to grow to $2691.69 billion by 2033 at a CAGR of 9%. 

Additionally, a recent survey revealed that 86% of Fortune 500 and 96% of Fortune 100 e-commerce companies use 3PL services for supply chain management and logistics management. 

The boom in 3PL services is the result of advanced tracking technologies, such as global positioning system (GPS) and radio frequency identification (RFID). Meanwhile, emerging technologies, such as the Internet of Things (IoT) and Artificial Intelligence (AI), have improved tracking metrics for transportation. 

How Does 3PL Work?

The 3PL fulfillment isn’t a standardized process and can vary depending on the services and providers. However, the typical process might look like this:

• The 3PL service provider received your product stock at its warehouse and organized them based on SKU. 
• Whenever you receive an order from your customer, it is either forwarded automatically or manually to a 3PL partner. 
• A warehouse team is assigned to collect and pack the items in boxes with order details and receipts. 
• The 3Pl partner prints and sticks the shipping labels on the products.
• Now, the delivery partner, or shipping carrier, collects the product from the distribution center and delivers it to the end customer. 
• All information regarding the package will be uploaded to the 3Pl system and synced with the order management software. 

While 3PL offers complete logistics solutions, they aren’t the only option for logistics management. To better understand its benefits, let’s compare it with other types of logistics management models: 

• Dropshipping: It is a retail fulfillment model that allows businesses to sell products without keeping the inventory. Whenever you get an order from the customer, you send it directly to the supplier, who will ship and deliver the product directly to the customer. 
• 2PL (Second-party Logistics): 2PL providers offer specific logistics services like transportation or warehousing, owning the assets used. Companies retain more direct control over operations with simpler, focused logistics functions.
• 4PL (Fourth-party Logistics): 4PL providers manage the entire supply chain, overseeing various 3PL providers. They focus on strategic supply chain management, optimizing efficiency, and ensuring seamless coordination of all logistics activities.

What are the Different Types of 3PL?

Third-party logistics (3PL) companies provide essential services to help businesses manage their supply chains. However, 3PLs are divided into four categories: 

• Transportation-based 3PLs: These companies specialize in moving products from one place to another. They might use their own vehicles or partner with other firms to provide these services. Besides transportation, they often offer additional logistics services.
• Warehousing and Distribution-based 3PLs: These 3PLs focus on storage and distribution. They manage warehousing needs and handle the import and export of goods. They help retailers store products until they are ready to be sold and shipped out.
• Freight Forwarders: These 3PL partners act as intermediaries and don’t typically own the transportation assets but coordinate the movement of goods from the origin to the carrier hub. They ensure that shipments reach their destinations efficiently.
• Managed Transportation 3PLs: These companies offer comprehensive logistics services. They oversee the entire delivery process, from start to finish. Managed transportation providers also offer various fulfillment solutions to ensure products are delivered on time.

What do 3PL Service Providers Do?

Outsourcing and managing a 3PL might seem scary and expensive at first, but it doesn’t have to be. It can actually make your business operations smoother. 

When you work with a 3PL service provider, you hand over the logistics details to them. This frees you up to focus more on other parts of your supply chain and your main business goals.

Here’s a look at what a typical 3PL might handle for you, as well as some extra benefits they offer:

Receiving

The first step in working with a 3PL is getting your inventory to them. A 3PL warehouse will receive your products and store them until they need to be shipped to a customer.

The 3PL coordinates the inbound shipments with freight forwarders. Freight forwarders help manage the bulk shipments from the manufacturer to the warehouse. Meanwhile, the 3PL stores your products until they are ready to be shipped out.

A good 3PL uses warehouse management software to make the process easier. This software helps identify where a product is stored and when it was placed in storage. This makes it easy to fulfill orders quickly when they come in.

Order Fulfillment

This is the process of getting products from the warehouse to the customer once an order is placed. When a customer places an order, the 3PL processes it. The products are picked from the warehouse shelves and packed for shipping. The packed orders are shipped to the customers.

3PLs handle all the details, ensuring that orders are accurately picked, packed, and shipped on time. This can improve customer satisfaction.

Inventory Management

It is a typical service offered by 3PL providers. They manage your stock levels to ensure you have enough products to meet demand but not too much that they sit unused.

The 3PL tracks your inventory levels. They notify you when it’s time to reorder products and provide reports on stock levels and movement.

Effective inventory management helps prevent stockouts (when you run out of products) and overstocking (when you have too much). This saves you money and keeps customers happy.

Returns Management

3PL isn’t just limited to delivering products but also handling customer returns. The 3PL receives returned products from customers. They inspect the returned products.                                                                                                                        

Depending on the condition, the products are either restocked or disposed of. Efficient returns management can improve customer satisfaction and reduce losses from returns.

Value-Added Services

Apart from the above services, 3PL partner might provide additional services, which mainly include — 

• Custom Packaging: Some 3PLs offer custom packaging solutions to enhance your brand and protect products during shipping.
• Kitting and Assembly: 3PLs can assemble multiple products into kits, which can be a great way to offer special promotions or simplify shipping.
• Labeling: They can handle labeling tasks, ensuring that your products meet all regulatory requirements and are ready for retail.

Benefits of 3PL (Third-Party Logistics) 

With consumers demanding faster delivery options, companies are increasingly turning to third-party logistics (3PL) providers. Here’s why outsourcing logistics can be a smart move for your business:

1. Faster Delivery Options

3PL providers can store your products in warehouses near key markets. This means quicker delivery times for your customers. For example, a 3PL can have warehouses in different locations, ensuring that your products are closer to your customers.

2. Save Time and Streamline Operations 

When you have a dedicated 3PL handling your order fulfillment, you gain more time to focus on other important areas of your business. You don’t have to worry about hiring extra staff, developing new technologies, or building complex supply chain infrastructure. These tasks can be time-consuming and costly, potentially causing strain on your current staff and disrupting your operations.

3. Specialized Knowledge of Logistics

Top 3PL providers often bring years, if not decades, of experience in logistics and supply chain management. They have dealt with various challenges, from raw material shortages and supply chain disruptions to political instability. This extensive experience has taught them valuable lessons and enabled them to implement systems that mitigate issues during the fulfillment process.

4. Flexibility in Supply Chain

As your business grows, you might see changes in demand and order volumes. Sometimes, you might have a lot of orders, and other times, not so many. A 3PL can easily adjust its operations to match your needs. They can scale up or down to handle these fluctuations. This means you don’t have to worry about managing changes in order volumes yourself.

5. Reaching Global Markets

Expanding your business internationally can be a complex process. Each country has its own rules and regulations about importing and exporting goods. A 3PL with a global network can help you navigate these regulations. They have experience and knowledge about different markets, which makes it easier for you to sell your products worldwide.

6. Handling Logistics

3PL providers specialize in logistics. They have the technology, trained staff, and resources to handle the logistics part of your business efficiently. This allows you to focus on other aspects of your business, like product development, marketing, and customer service. With a 3PL taking care of logistics, your business operations can run smoothly and efficiently.

7. Cost Savings

Using a 3PL can also save you money. Setting up and maintaining your own supply chain infrastructure can be very expensive. By outsourcing to a 3PL, you save on these costs. They already have the infrastructure in place, and you only pay for the services you need. This can be a cost-effective solution, especially as your business grows.

Disadvantages of 3PL (Third-Party Logistics)

While third-party logistics (3PL) providers offer many benefits, there are also a few downsides to consider before investing. Here’s a breakdown of some potential disadvantages:

1. Product Type

Outsourcing order fulfillment for products with low prices, thin margins, or long fulfillment times might not be practical. The costs of using a 3PL could outweigh the benefits of these types of products.

2. Profit Margins

One main concern with using a 3PL is how it will affect your profit margins. Getting a detailed and accurate quote of ongoing and onboarding costs is important. Ensure to include these costs in your Cost of Goods Sold (COGS) calculations before entering into a partnership with a 3PL. This helps ensure that the service is cost-effective and helps improve profitability.

3. Upfront Investment

Working with a 3PL requires an initial investment. Be prepared to cover the setup and onboarding costs associated with starting a partnership. In addition to the regular monthly fees, one-time costs may be incurred during the signup process. These upfront expenses need to be factored into your budget to avoid financial strain.

4. Lack of Full Control and Oversight

When you work with a 3PL, you hand over the daily fulfillment tasks to them. While you still have the final say over your supply chain, you won’t be involved in the day-to-day operations. This means you won’t have complete visibility into the warehousing processes and how tasks are being executed.

5. They Can Be Too Generic

3PL providers often serve multiple clients from various industries. This means they might not specialize in any particular industry, which can be a disadvantage if your business has specific needs. If your industry requires special handling, such as cold storage for food products, it can be challenging to find a 3PL that meets these requirements. 

When Should You Need 3PL Services?

Every ecommerce business should consider outsourcing to a third-party logistics (3PL) provider. By partnering with a 3PL, businesses can save costs, gain efficiency, and improve the customer experience.

Here are some key indicators that it might be time to make the switch:

Lack of Expertise

Managing order fulfillment and supply chains has become very complex. If you find that your team is struggling to keep up, it could be a sign to outsource. Inefficient processes not only increase costs but can also lead to poor customer experiences. 3PL providers are experts in logistics, ensuring smoother and more cost-effective operations.

Limited Resources

Expanding your logistics infrastructure, technology, and personnel requires a good investment. If your business doesn’t have the necessary resources, it might face capacity constraints and scalability issues. Instead of cutting into profits or taking on debt to expand your in-house services, a 3PL can provide the needed support with its existing infrastructure.

Handling Demand Fluctuations

Running a business means dealing with changing customer demand. Sometimes, it’s hard to predict how many products you will need. This can make managing your inventory, picking, packing, and shipping orders a real challenge. 

Outsourcing to a third-party logistics (3PL) provider gives you the flexibility you need to handle these fluctuations. A 3PL can help you manage sudden spikes in sales with targeted marketing campaigns, adjust to unexpected changes in demand, and ensure sustainable growth for your business.

Expanding Internationally

If you are thinking about expanding your business to other countries, there are many hurdles to overcome. International expansion brings challenges like navigating customs regulations, dealing with language barriers, and understanding cultural differences. 

A 3PL provider with a global supply chain network and expertise in international trade can make this process much easier. They can help you navigate these challenges and successfully reach new markets, ensuring that your products get to customers worldwide smoothly and efficiently.

Conclusion

Third-party logistics (3PL) is a game-changer for businesses looking to optimize their supply chain and logistics operations. This logistic model providers bring expertise, technology, and resources that help streamline operations, reduce costs, and improve customer satisfaction. While there are some potential downsides, such as loss of control and initial costs, the benefits often outweigh these challenges, making 3PL a smart choice for many businesses.

As your business grows, 3PL providers offer the scalability and flexibility needed to handle fluctuations in demand and expand into new markets. Their specialized knowledge ensures that your logistics operations run smoothly, allowing you to concentrate on what matters most—growing your business.

If your e-commerce business needs help with setting up an online store or developing a Shopify platform, Malicy App Developers are here to assist. With expertise in e-commerce solutions and Shopify development, we can help you create a seamless and user-friendly online store that meets your business needs. 

FAQs

What is the Meaning of 3PL?

3PL stands for Third-Party Logistics. It refers to outsourcing logistics and supply chain management tasks to an external company. These tasks can include warehousing, transportation, inventory management, order fulfillment, and distribution. 

What is An Example of a 3PL?

An example of a 3PL is a company like FedEx Supply Chain. They provide various logistics services to other businesses, including warehousing, transportation, and distribution. For instance, an e-commerce retailer might use FedEx Supply Chain to store their products in multiple warehouses across the country and handle the shipping of orders to customers, ensuring timely delivery and efficient management of inventory.

What are the Risks Involved in Using 3PL?

Using a 3PL involves risks such as loss of control over logistics operations, potential service quality issues, and dependency on the provider. If the 3PL provider fails to meet service levels, it can impact the business’s reputation and customer satisfaction. Additionally, there might be challenges with communication and coordination, leading to delays and misunderstandings. 

What is 3PL Pricing?

3PL pricing varies based on the services provided, the complexity of the logistics operations, and the volume of goods handled. It typically includes charges for storage, transportation, order fulfillment, and additional services like packaging or labeling. Some providers may charge a flat fee, while others use a per-transaction or percentage-based model. 

Is 3PL Profitable?

Yes, using a 3PL can be profitable for businesses. By outsourcing logistics, companies can save on warehousing, transportation, and personnel costs. This allows them to focus on core business activities and improve efficiency. 3PL providers bring expertise and technology that can streamline operations, reduce errors, and enhance customer satisfaction. However, it’s essential to carefully evaluate the costs and benefits to ensure that the partnership with a 3PL provider aligns with your business goals and financial objectives.