What Is 3PL? The Guide To Third-Party Logistics For Ecommerce

What is 3PL?

The short answer is that it’s short for third-party logistics.

The long answer is that they’re pretty much the foundation to ecommerce. If third party logistics companies were to disappear tomorrow, the majority of successful ecommerce companies, besides the big boys like Amazon, would also disappear. They’re that important. This is true even if you only sell physical products in stores.

We’ll talk more about that later though.

If you’re new to 3PLs, then you’re in the right place. We’re going to cover everything you need to know about 3PLs so you understand exactly how they can help your ecommerce business and how you can make the best choice as to which partners to work with

So let’s get started…

What Is A 3PL Company?

Again, 3PL is short for third party logistics. 

Basically, it’s a service that allows you to outsource all of the fulfillment operations so that you can focus on growing your ecommerce business. It doesn’t matter whether you sell streetwear, candles, subscription boxes, hair, tea, CBD, or a clothing line… you’ll need a 3PL.  

This includes…

Receiving – Receiving of inventory from manufacturers
Warehousing – Storing your inventory in their fulfillment centers
Picking – Getting the products you just sold with customer details
Packing – Packaging your product to be ready for delivery
Shipping – Prints out the label and lets a major carrier like USPS pick it up
Returns – Receives returns and either restocks the product or disposes it

Most successful ecommerce businesses work with 3PLs because it’s the most convenient way to get products quickly and safely to customers.

There are a ton of other benefits to working with a 3PL as well…

3PLs can negotiate pricing with freight companies due to volume
3PLs allow you to scale up as you grow or scale down if you make less sales
3PLs are much less likely to experience shipping delays
3PLs are experts in warehousing and fulfillment because they specialize in it
3PLs save you money from having to have your own fulfillment operation

With that said, there are also some noticeable drawbacks…

If something happens, your customer will look to you for answers, but you can’t really do anything other than talk to your 3PL to fix the problem.

They can be a bit expensive for a brand new business, particularly when it comes to the effect pick & packing has on margins.

3PL vs 4PL: What Is The Difference?

While on your journey learning about 3PLs, you may have heard of a 4PL.

While 3PL means third party logistics, 4PL means fourth party logistics. And while 3PL means you directly work with partners to outsource your fulfillment, 4PL allows you to have someone else deal with the communication between the company and 3PL services

In other words, 4PL truly outsources everything… even communication.

This is typically a solution for bigger companies though. Almost every ecommerce brand works with 3PLs because it allows them to keep direct communication with fulfillment and it works much better with their budgets. 

So if you’re an ecommerce company, I wouldn’t worry about 4PLs.

What Types Of Ecommerce Businesses Should Use 3PLs?

If you’re a brand new business, you probably don’t need to worry about working with a 3PL. However, if you’re growing, then it’s time to seriously think about. 

Here’s what to ask yourself to know if you’re ready to work with a 3PL

Am I shipping over 100 orders per month?

There is no real specific number to know if you should work with a 3PL, so 100 is an arbitrary number. With that said, if you’re a growing brand, there will come a point where you’ll literally won’t be able to keep up with your fulfillment.

If that sounds like you, then you need to start looking for 3PLs.

Otherwise, you’ll be stuck doing some of the lowest value work you could be doing in an ecommerce business. Worst of all, it’ll only get worse as you grow. So while you may think you’re saving money by not working with a 3PL, you’re literally stepping over dollars to pick up pennies. Don’t put yourself in that position.

Do I even have space for inventory?

In many cases, people start off by using their homes as warehouses. But as you grow, you can’t just make more room if there isn’t any extra room. Neither is it worth getting a new home as the cost will outweigh any potential savings you would have had doing the shipping yourself. 

Plus, you’re still doing low value work by shipping everything yourself. Not to mention the potential conflicts you can have with others who live in your home as they see boxes everywhere around the house. 

So if you don’t have space for inventory, just look for a 3PL.

How To Choose A 3PL Company?

There are a ton of 3PLs out there. Unfortunately, 3PLs aren’t really known for their marketing. Unlike the best Shopify themes, they don’t do a good job describing what it is that they do and why you should hire one 3PL over the other. So in a world where all 3PLs look the same, how do you choose?

There are 5 major questions you can ask to help nail down your options.

How are you different from every other 3PL?

This question is a soft ball for any company that really understands what it is they do. Not only will you get a straightforward answer as to why you should do business with them, but it will also let you see if they even know what they’re talking about.

How does your technology work?

You need a 3PL that will connect seamlessly to your online store and help you leverage any data they have. If they don’t have up-to-date technology to make this part of the process as easy, simple, and hands off as possible, it’s a deal breaker.

Where are your 3PL fulfillment centers located?

Shipping speed is everything these days. And the best way to control shipping speeds is to have fulfillment centers as close as possible to where your orders are coming from. So asking them this will let you know how fast they can ship something to your customers.

What kind of volume can you handle?

If you’re growing, this is a huge question. You want a 3PL that can not only handle your current volume, but you want a partner you can keep working with 3-5 years from now when your volume is (hopefully) at much higher levels. Otherwise, you’ll waste time having to go through this entire process again later to find a new partner.

What are your costs?

Ultimately, costs are a big factor. Particularly if you’re a small company. In all cases though, it’s important to know the exact costs because shipping has a huge effect on your profit margins. So you need to be ready to understand how lower profit margins can affect your growth.

The Top 10 3PL Companies

So we talked about what is 3PL and everything you need to look for when trying to hire one. Now, let’s talk about some of the highest recommended 3PLs.

Redhawk Logistics
DCL Logistics
Rakuten Logistics
Fedex Supply Chain
UPS Supply Chain Solutions  

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