Part 1: Defining 3PL & The Primary DifferencesWritten by Neal Willis
Third-party logistics (3PL) is a term that’s used very broadly to define a range of different outsourced logistics solutions. In this first post in a series of posts about 3PLs, we are going to look at defining 3PL and the two main categories into which 3PLs fall.
At its core, the definition of 3PL is simple. It’s the hiring of a third party to perform all or part of another company’s transportation and supply chain functions. This can range from involvement in only a specific area of transportation all the way to the management of the entire supply chain.
Different Types of 3PLs
Broadly speaking, there are two main categories of 3PLs: Asset-based and Non-Asset based. Even if only slightly varied, most differ from each other with regards to size and scope of service offering. Some handle virtually everything involving freight and the supply chain, such as warehousing, distribution, order fulfillment and administrative services, and some specialize in one particular area of expertise, such as the integration of systems & operations. Obviously there may be a variety of different types of 3PLs that fall in between these two categories.
Oftentimes, when shippers hear the word 3PL they tend to think of a freight broker. Brokers are ordinarily non-asset based, meaning they don’t typically handle any of the actual freight themselves, since they don’t own any trucks or equipment (assets). Brokers match shippers in need of a carrier to carriers with available equipment and space for hauling freight. The non-asset based 3PL (broker) leverages their industry expertise, technology and vast network of carrier and contact information to generate their income.
Asset-based 3PLs use trucks, buildings and other equipment (assets) in addition to their expertise, technology and carrier and contact networks to generate their income.
They can often be found operating in warehousing and distribution settings, among other environments. They may broker freight for their customers to other asset based carriers at times, and they sometimes handle the freight themselves. It frequently depends on the resources (assets) available for use at a particular point in time.
An asset-based 3PL’s geographic footprint can also play a role in determining whether to handle a function internally or outsource to another provider. For example, a 3PL operating solely within the U.S. may outsource their customer’s international ocean freight to another service provider if they don’t have their own fleet of ships available for transporting a customer’s cargo containers.
Companies may find the 3PL marketplace overwhelming when attempting to evaluate a 3PL as a potential solution for handling all or part of their supply chain, however, 3PLs can provide companies with unique resources and expertise that will give them a competitive advantage, regardless of industry. Next, we will take a closer look at some of the positive impacts the right 3PL supplier can have on an organization.