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3PL Basics, Everything You Need to Know About Third-Party Logistics

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In your normal process of sending products to your clients, have you ever experienced high shipping costs, fluctuating rates, delays in delivery, inefficient transportation management, or difficulty scaling operations during peak seasons or rapid growth? These and many other problems have a solution called Third-Party Logistics, also known as 3PL.

“It’s well said that behind every great leader, there was a greater logistician,” a quote from James M. Cox, an American businessman and politician who served as Governor of Ohio twice. This phrase resonates because it's true! Logistics is an essential part of every process that promises the right product, in the right place, at the right time, and 3PLs are made to fulfill those needs. Regardless of the industry you come from, your business integrates with a 3PL in some capacity.

According to a publication by Statista Research Department, “In 2023, the global logistics industry continued to recover from the COVID-19 pandemic with a market size of approximately 9.41 trillion U.S. dollars. By 2028, the logistics industry scale is projected to exceed 14.08 trillion U.S. dollars”. These numbers show us how huge this industry is and how impactful good or bad logistics management can be.

Understanding Third-Party Logistics (3PL)

3PLs are essentially operations providers. Although some 3PLs work differently, they generally handle warehousing storage, inventory management, order fulfillment, transportation, and returns processing. Their main goal is to provide you with warehousing and distribution solutions that align with your supply chain management strategy.

When you partner with a 3PL, you receive trusted support that allows you to focus on developing new products, identifying new customers, and driving growth while leaving operational processes to the experts. Some 3PLs also offer import, export, and customs brokerage services and are known as freight forwarders.

Additionally, 3PLs can offer services such as shipping and receiving, picking and packing, kitting, stripping, stuffing, segregation, cross-docking, and many more.

Premium Services from 3PLs

You can find multiple third-party logistics providers that offer premium services to protect your cargo from origin to destination. For example, if you belong to the food and beverage industry, your products may need a refrigerated warehouse space and specialized transportation with temperature control, known as a refrigerated container, reefers for short. The same applies to pharmaceuticals, which are sensitive products treated as highly valued cargo. Hazmat (Hazardous Materials) is another industry that requires careful transportation and warehousing. 3PLs are thoroughly prepared to cover all specialized industries.

The Historic Unification Between Industries

If you didn’t know, the term 3PL is older than you might think. Here's a brief look at how this concept has evolved over the decades.

1980s

The origin of third-party logistics dates to the 1980s when the Motor Carrier Act, signed on July 1st, 1980, by President Jimmy Carter, significantly reduced government control of the trucking industry, lifting multiple restrictions and opening doors for new carriers. This translated into gains for the industry, shippers, and consumers. Carter also signed the Staggers Rail Act, which deregulated rates and allowed railroads and shippers to negotiate rates, marking the beginning of third-party companies that unified multiple logistics services.

Global Expansion in the 1990s

In the 1990s, companies began expanding globally, regardless of size, aiming to conquer international markets. Economic developments in regions like China and India encouraged companies to move their manufacturing functions, making third-party logistics key in handling domestic and international logistics.

Technological Advancements in the 2000s

The 2000s were crucial for the progress of 3PLs. As the global market grew, logistics processes became complex, requiring urgent organizational planning. Technology advanced, and 3PLs integrated technology for inventory management and transportation, enhancing visibility in each step of the order, saving time and money.

Resilience and Innovation During Pandemic Times

The year 2020 was turbulent for all sectors, including logistics. The COVID-19 pandemic caused initial confusion but then showcased resilience and adaptability. This period was an opportunity to think about the future and the need for continuity during such events. Innovation became key for the logistics sector, accelerating digitalization processes, the use of robots in warehouses, autonomous trucks, and more.

The Evolution of 3PLs

The current situation of 3PLs is a mix of technology, business flexibility, and a high level of trust in these providers, making companies' lives easier regardless of the sector. The evolution of party logistics includes 1PL, 2PL, 3PL, 4PL, and even 5PL.

  • 1PL refers to companies that use shipping methods to move goods within a specific area, like port operators.
  • 2PL companies offer the same service but with broader coverage, often having their logistics resources like warehouses and trucks, including small parcel services or ocean carriers.
  • 3PL involves outsourcing various logistics operations to a third-party provider, such as warehousing, transportation, inventory management, and order fulfillment. 3PLs provide a range of logistics solutions to support supply chain management.
  • 4PL is a new logistics model where the provider takes almost full responsibility for the logistics process, managing resources like technology and infrastructure to increase supply chain efficiency.
  • 5PL focuses on big data for efficient processes and manages supply chain networks, including some 3PLs and 4PLs.

Choosing the Right 3PL for Your Business

The best logistics partner depends on your business and specific needs. It's not about the number of PLs; it's about deciding how much you want to manage internally versus how much you prefer to outsource. Outsourcing allows you to focus on your business strategy.

The Advantages of Using 3PLs

Using third-party logistics providers comes with several advantages:

  1. Cost Savings: Partnering with a 3PL can significantly reduce shipping costs and eliminate the need for large investments in warehouse space, technology, and staff.
  2. Scalability: 3PLs offer flexibility, allowing businesses to scale operations up or down based on demand without significant additional investment.
  3. Expertise: 3PLs have specialized knowledge and experience in logistics, ensuring efficient and effective supply chain management.
  4. Focus on Core Competencies: Outsourcing logistics operations to a 3PL allows businesses to focus on their core competencies and strategic initiatives.
  5. Improved Customer Service: With better logistics management, businesses can provide faster and more reliable delivery services to their customers.

Technological Integration in 3PLs

Modern 3PLs integrate advanced technology to enhance their services. Some of the key technologies used include:

  • Warehouse Management Systems (WMS): These systems optimize warehouse operations, improve inventory accuracy, and enhance order fulfillment processes.
  • Transportation Management Systems (TMS): TMS helps in planning, executing, and optimizing the movement of goods, ensuring efficient transportation management.
  • Order Management Systems (OMS): OMS provides end-to-end visibility of orders, enabling businesses to manage and track orders effectively.
  • Real-Time Tracking: With GPS and IoT technologies, 3PLs offer real-time tracking of shipments, providing visibility and transparency to clients.
  • Artificial Intelligence (AI): AI-powered solutions help in demand forecasting, route optimization, and predictive maintenance, enhancing overall efficiency.

Industries Benefiting from 3PL Services

Various industries benefit from the services provided by 3PLs, including:

  • E-commerce: 3PLs handle order fulfillment, warehousing, and shipping for online retailers, allowing them to scale and meet customer demands.
  • Food and Beverage: Temperature-controlled storage and transportation ensure the safe and timely delivery of perishable goods.
  • Pharmaceuticals: 3PLs offer specialized handling, storage, and transportation for sensitive medical products.
  • Hazmat: Hazardous materials require careful logistics management, which 3PLs are equipped to handle.
  • Retail: 3PLs manage inventory, warehousing, and distribution for retail businesses, ensuring efficient supply chain operations.

The Future of 3PLs

The future of third-party logistics looks promising, with continued advancements in technology and increasing demand for efficient supply chain solutions. Some trends shaping the future of 3PLs include:

  • Increased Use of Automation: Automation in warehouses and transportation will enhance efficiency and reduce labor costs.
  • Sustainability Initiatives: 3PLs are adopting eco-friendly practices, such as using electric vehicles and optimizing routes to reduce carbon footprints.
  • Expansion of E-commerce: The growth of e-commerce will drive demand for 3PL services, especially in order fulfillment and last-mile delivery.
  • Enhanced Data Analytics: Data-driven insights will help 3PLs optimize operations, improve decision-making, and provide better customer service.
  • Collaboration and Integration: Collaboration between 3PLs and other supply chain partners will lead to more integrated and seamless logistics solutions.

Conclusion

Third-party logistics providers play a crucial role in the success of businesses across various industries. By outsourcing logistics operations to 3PLs, businesses can reduce costs, improve efficiency, and focus on their core competencies. With the integration of advanced technologies and the ability to scale operations, 3PLs offer valuable support in managing complex supply chains. As the logistics industry continues to evolve, partnering with a reliable 3PL will be essential for businesses to stay competitive and meet the demands of their customers.

With a commitment to excellence and a comprehensive suite of logistics services, Custom Goods stands out as the best option to support your business. From warehousing and inventory management to transportation and order fulfillment, their expertise and advanced technological solutions ensure that your logistics operations run smoothly and efficiently.

Partner with Customs Goods to enhance your supply chain, reduce costs, and focus on what you do best growing your business.

If you need guidance on your logistics process, don’t hesitate to reach out. We are ready to assist and provide full support.

By Natalia Kuvelas