What is a 3PL Company
The phrase “3PL Logistics” is well known and understood by industry professionals and stakeholders,” but quite confusing for many others outside the Logistics industry; those who may have directly or indirectly engaged a 3PL company or even planning to engage one without actually knowing they are a 3PL provider. It’s important to note that 3PL is different from Freight Forwarding.
While Freight Forwarding involves the movement of shipments from point A to Point B, 3PL handles everything – including pick-up from the warehouse at the origin, freight forwarding, storage at the destination, regulatory formalities, trucking, tracking, up to delivery to the client’s doorstep. In other words, a 3PL provider can also function as a freight forwarder, but an average freight forwarder is not necessarily a 3PL company. So then, what is 3PL? Who is a 3PL provider? Why is 3PL Necessary? What are the benefits of 3PL?
The Meaning of 3PL
3PL (Third-Party Logistics) is simply when an individual or organization outsource their logistics processes to a party, agent or organization to handle on their behalf. For instance, a beverage manufacturer hires a Product Development, Production, Testing Manager or a Product Promotion or Business Development Manager to produce, promote and sell its products but outsources its logistics processes (Ocean, Air, Road Cargo Forwarding, Customs Clearance, Warehousing, Trucking & Distribution/delivery) to a Third-Party Logistics (3PL) company, whose core expertise is logistics.
A 3PL company (Third-Party Logistics company) is a company that provides logistics and supply chain management services to businesses. 3PL companies typically specialize in one or more areas of logistics, including transportation, warehousing, inventory management, freight forwarding, customs brokerage, and other related services.
The primary function of a 3PL company is to provide businesses with a cost-effective and efficient way to manage their logistics operations. By outsourcing logistics to a 3PL provider, businesses can focus on their core operations and reduce their overhead costs. 3PL providers typically have a network of carriers and warehouses that they use to provide logistics services, which allows them to negotiate better rates with transportation and warehousing partners than individual businesses could on their own.
Some 3PL companies also offer value-added services, such as order fulfilment, packaging, labelling, and other customizations that help businesses tailor their logistics operations to their specific needs. Overall, 3PL companies play a critical role in managing the supply chain and ensuring that businesses can get their products to market efficiently and cost-effectively.
Employing the services only when they are needed allows the company to outsource its logistics process to focus on its core (manufacturing, for instance) services. This allows the manufacturer to reduce cost and maximize resources, which will hardly be the case if they also must bother themselves with direct involvement in the outsourced 3PL process.
Again, a typical 3PL company possesses the technical competence and capacity to arrange for end-to-end transportation, process all the necessary documents; provide advice on the requisite regulatory requirements, as well as deliver cargoes in the best possible condition. And where there is damage or loss of cargo, the 3PL provider bears the insurance cost, to the extent covered in either its Good-in-Transit (GIT) or Indemnity Insurance Policies.
More than ever before, the demand for 3PL services will continue to grow due to emerging technological innovations in e-Commerce, cargo visibility/tracking capabilities found among many 3PL providers across the world.
Focus: Engaging a 3PL company allows clients with limited logistics expertise to focus on the core aspects of their business and outsource their logistics processes to a competent 3PL, whose core is logistics.
Cost Efficiency: 3PL providers save their clients from avoidable costs. This is because the 3PL is equipped with all the necessary global logistics networks, the ability to coordinate cargo transportation across diverse global and local routes, and the requisite infrastructure, technology, and technical competence to manage the cost of handling the complexities of the logistics process.
Flexibility: 3PL companies are mostly able to offer their clients a bouquet of services (Ocean, Air, Road Cargo Forwarding, Customs Clearance, Warehousing, Trucking & Distribution/delivery) they may not easily provide for themselves with additional cost.
While there may be some notable limitations, such as limited control of the 3PL provider, it’s quite safe to insist the benefits of engaging a competent 3PL company to the productivity and efficiency of the outsourcing client or organization far outweigh the risks or limitations and as such a viable option for organizational efficiency and productivity.