Monday, September 25, 2023

Advantages and Disadvantages of Third-Party Logistics (3PL)  

By Bineesh Mathew - May 15, 2023 6 Mins Read


In business logistics, 3PLs are the shipping and order delivery services provided by third-party providers and logistics software companies for online stores. The 3PL is responsible for order sourcing, warehousing, inventory management, labeling, picking, packing, and delivery to end customers.

Often, online businesses delegate the responsibility for shipping and order fulfillment to these suppliers. Research shows that partnering with a 3PL helps companies to scale faster.

Because of its advantages, most businesses have started outsourcing shipping and logistics to 3PL services. As the online store grows and receives larger orders monthly, the 3PL provides its customers with a smooth and simplified shipping and delivery experience.

Third-party logistics providers can store items in their warehouses, manage inventory, restock when needed, and ultimately deliver items when customers order them. In addition to these shipping services, 3PLs provide businesses with custom packaging, picking, packing, bundling, customs clearance, and more.

Top Advantages of 3PL

The benefits of 3PL logistics are enormous. There are many causes why so many companies worldwide choose to partner with external logistics providers.

Some eCommerce businesses choose to manage to ship in-house when they launch. This option is viable for retailers when order volumes are small and logistics are easy to manage. But as orders multiply over time, it’s a good idea to work with a 3PL.

Here are some of the advantages of working with 3PLs for businesses:

  • Lower Shipping Prices

One of the major advantages of a 3PL is its cost efficiency. Third-party logistics service providers work with many different companies. For this reason, they can offer cheaper and more attractive shipping rates to individual companies.

Managing logistics in-house is a costly investment. On the other hand, 3PL companies can take advantage of their economies of scale to offer favorable shipping services at much lower prices.

  • Speedy Delivery

They operate a multitude of delivery fleets since 3PLs specialize in shipping services. With this, shipments can be easily transported from one place to another on time.

Warehouses are scattered across geographies, which is another advantage of third-party logistics. This striking disparity gives them the advantage of delivering orders faster globally to customers.

Also Read: Key Factors Enterprises Need to Consider When Selecting Third-Party Data Providers

eCommerce logistics providers have maintained the norm of one-day delivery to customers since Amazon made it a standard. Even at the shortest notice, they can provide customers with lightning-fast deliveries. Shipping to multiple locations is particularly beneficial for drop shipping businesses.

  • Customized Shipping Services

If Businesses want to win the customers’ hearts, it’s all about customization and personalization. Luckily, third-party logistic companies can help out with that. They offer tailor-made shipping services for both B2B and B2C sectors.

With 3PLs, brands can print shipping labels to the specifications and even create unique packaging for those extra special orders. They can even handle branded packaging for customers. Remember that these custom services come with additional fees, so it’s best to talk to the 3PL provider about pricing upfront.

  • Insurance and Other Benefits

For running a business that sells jewelry, designer watches, or other valuable items, it’s wise to have an insurance plan for shipping. One great thing about using a third-party logistics provider is that they usually offer insurance to cover any losses businesses might experience during shipping- giving brands peace of mind knowing this insurance has their backs in case of unexpected mishaps.

Choose an insurance plan that doesn’t leave the business solely responsible for losses. A good 3PL provider can help navigate those details and get a contract that works for everyone involved.

Top Disadvantages of Third-Party Logistics

Above is the list of reasons why 3PLs can bring incredible value to the product shipping operation. However, it’s essential to acknowledge that there may be some drawbacks to using third-party logistics services. While the benefits usually outweigh the disadvantages, it’s still worth looking closer.

For instance, establishing direct contracts with carriers can have several cool perks that might give businesses an edge over the competition. On the other hand, managing multiple courier partners can be a bit tricky. To make the best decision for the business, it’s essential to consider these potential 3PL disadvantages before making any significant commitments.

  • Difficulty Tracking Multi-Carrier Orders

When brands work with several courier partners, tracking all incoming orders in real-time can be challenging. That’s why staying on top of your tracking game when running a business is super important. Things can quickly become overwhelming if brands don’t keep an eye on all orders. This is one of the challenges many e-commerce companies encounter when using 3PL services.

  • Separate Allocation of Orders

One thing to remember with 3PL is that it can be tough to track order allocation. It might not look like a big deal to assign a courier partner to handle an order once placed, but it gets more complicated when working with multiple partners handling dozens of orders daily. This means that brands rely on customers and partners to know if there are any delivery problems.

  • Independent Communications

Businesses must contact each carrier individually if they encounter any issues with an order. Although cutting out the middleman may speed communication, third-party logistics providers don’t always ask about individual rulings.

Dealing with each carrier separately can be a hassle and takes time. Without Application Programming Interface integrations to streamline communication, miscommunications can sometimes happen. This is one downside of using third-party logistics for shipping.

  • Different SLA Terms

When working with different carriers, it’s essential to remember that each one will have its unique demands and required services. This is especially important when working out SLA terms. Make sure it is crystal clear in the communication about what the business needs and expects.

Also Read: CIOs to Invest in 2023

While some terms may be standard, it’s worth negotiating to get the best deal possible because then you know exactly what the brand requires from each carrier – access to remote areas, better product safety during transit, or discounted rates. Be prepared, and don’t let hidden costs catch you off guard. Companies can enjoy all the benefits of working with various carriers with a little upfront effort.

Summing UP

As companies see from the lists above, partnering with a 3PL can benefit your eCommerce business. With their help, brands can expand their reach, attract new customers, and enjoy streamlined shipping processes, to name a few. Of course, as with any business arrangement, there are some potential drawbacks. Differences in values and concerns over loss of control may give brands pause when contemplating a collaboration with a third-party logistics provider. Finally, the decision to work with a 3PL should have a foundation in the unique needs and available resources.

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Bineesh Mathew

Bineesh Mathew is an accomplished senior writer with 10+ years of experience in multiple domains. With a proven track record, he has specialized in writing for business strategies, innovations, the latest technologies, and management topics. Currently, Bineesh is working as a Senior Content Writer with On Dot Media. Bineesh is an English Literature graduate who has mastered the language with excellent editing skills. As a writer, he has contributed exciting writing pieces for various topics such as digital marketing, cybersecurity, and different latest technologies, including supply chain, management, enterprise leadership, and much more.

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