by Brian Sheehan Brian Sheehan

3PL, or third party logistics, is a term to classify a company that provides complex outsourced logistics services and supply chain management. A 3PL provider engages in a variety of services that receives product or material from the manufacturer or supplier, guides it through the distribution or assembly channel, and ships it to the consumer or retailer.

The term ‘3PL’ is used today for a broad range of industries, and providers may supply a single service, like warehousing, or they may deliver a group of services that manage the material all the way through the supply chain. In short, 3PL can be used to define any service contract involving the warehousing or distribution of materials.

How 3PL Developed
Originally, companies under the 3PL category were termed as such to differentiate them from logistics providers that did not use the internet to support their services. According to the Council of Supply Chain Management Professionals (CSCMP), the term was first used to identify what’s known as Intermodal Marketing Companies (IMCs) involved in transportation contracts. Before the early 1970s, when ‘3PL’ was first used, these contracts only featured shippers and carriers.

“When IMCs entered the picture—as intermediaries that accepted shipments from the shippers and tendered them to the rail carriers—they became the third party to the contract, the 3PL. Definition has broadened to the point where these days, every company that offers some kind of logistics service for hire calls itself a 3PL,” the CSCMP glossary states.

Here’s how the five current levels of logistics are different:

  • 1PL: A firm or individual that transports its own goods from point A to point B. These companies are usually cargo owners that provide manufacturing or retail services.
  • 2PL: A second-party carrier that owns, leases or charters the methods of transportation that they use to ship a first-party’s goods, such as an airline, truck company, or shipping line. Carriers are typically 2PL providers of transportation services.
  • 3PL: A logistics provider that uses third party technology or logistics systems for some or all of the functions of their supply chain flow of goods. A 3PL partner is generally a logistics service provider.
  • 4PL: Independent logistics providers that blend all accessible capabilities, resources and technology (their own and that of other organizations) to construct and manage complex supply chain solutions for their clients. Lead logistics providers and consultants are classified as 4PL, offering comprehensive supply chain management.
  • 5PL: A logistics aggregator that combines the demands of their clients (sometimes includes 3PL clients) into a bulk volume in order to get reduced rates for shipping.

Trends in 3PL

Like virtually any industry, logistics has changed dramatically due to improvements and innovations with technology, affecting 3PL and 4PL providers more than the lower levels of logistics management. The industry is developing greater efficiency, cost-effectiveness and integration due to some key trends:

Mobile applications offer improved versatility. Luckily for the environment and organization, paper is almost a thing of the past for 3PL thanks to mobile applications and systems. Tracking information is readily available in greater detail with RFID, and we can even manage complex systems within the supply chain using a mobile device.

Smarter, dedicated technology improves efficiency. Specialized software, smarter IT and other technologically augmented systems are better than ever with regard to return on investment. 3PLs are investing in these technologies more and more to drive down costs, increase efficiency of operations, save time, and improve accuracy. For example, speech recognition software has created the ability for workers to communicate directly with the warehouse’s management system, speeding up their ability to access and direct products in the supply chain.

Big Data is driving systems changes for greater success. Many of the 3PLs of today are embracing Big Data and incorporating cloud-based technology into their systems and processes. Clients can use these systems to access and track their product as it moves through the supply chain, improving their experience and satisfaction. The real-time, universally accessible data helps track products better and process them more efficiently.

Shippers and 3PL companies are collaborating more than ever. Technology has radically changed the way information is shared between logistics and shipping, allowing these parties to connect, collaborate and engage on a higher level. The ease of access to real-time data streamlines performance, enhances flexibility with operations, and eliminates the risk of exchanging faulty or outdated information for greater accuracy.

Globalization of the supply chain, along with the world economy. The global economy is becoming more and more integrated, and 3PL supply chains along with it. In the future, these logistics companies will work with a much more global outlook, and at larger scale. With this globalization, the supply chain is probably going to become even more complex, supported by more efficient and effective operations thanks to technology improvements.

Benefits of a 3PL Partnership

Third party logistics allows your business to manage all aspects of warehouse operations without straining your economic and personnel resources, instead turning to integrated software applications to decrease administrative and resource investment.

  • Reduced Cost: 3PL companies are far more adept at supply chain management, and bring valuable expertise that reduces errors and optimizes efficiency in order to streamline costs and save your business money.
  • Shared Responsibility: By managing supply chains across the U.S., your business can rely on real-time information and tracking, reliable inventory levels, and order accuracy to remove some of your responsibility and ensure customer satisfaction.
  • Competitive Edge: A 3PL partner has access to a global distribution network, which allows your business to meet the demands of a global marketplace. This competitive edge could be a significant advantage to facilitate the growth and success of your business.

Contact us to discuss your needs for a 3PL partner!