3PL Guide: The Role of Third-Party Logistics in 2024

3PL Guide: The Role of Third-Party Logistics in 2024

Cathy Carpetta

Cathy Carpetta

February 15, 2024

For e-commerce business owners, managing customer orders is a critical aspect of daily operations. As your business grows, handling order fulfilment in-house might become impractical. 

As the volume of orders grows, you might outgrow your warehouse’s operational capacity, you’d need to find a new space, and hire new employees … Managing all of this can be quite challenging and time-consuming. 

This is where third-party logistics (3PL) companies step in! 

Partnering with a 3PL helps in achieving both short and long-term supply chain goals, with data and technology enhancing progress. 

The 2024 Penske Third-Party Logistics study shows 95% of shippers find 3PL collaborations successful. Notably, 89% credit 3PLs for improving service, and 80% acknowledge their role in reducing logistics costs.

This guide provides you with all the necessary information about 3PL services, helping you decide if they're a good match for your e-commerce needs.

1. Understanding third-party logistics companies 

To kick things off, let's unravel the acronym itself. 

Traditionally, "3PL" stands for third-party logistics, a strategic outsourcing solution where companies leverage external service providers. They manage certain aspects of their logistics and supply chain operations. 

This collaboration allows e-commerce companies to focus on their core business. While entrusting transportation, warehousing, and reverse logistics to specialised partners.

Simply said, 3PL orchestrates your e-commerce operations from A to Z. 

But nowadays, some partners are revolutionising the 3PL landscape.
Logistics companies are offering more advanced solutions to help e-commerce businesses grow and track in real-time data related to your inventory, orders, returns… 

Some have even developed their own Warehouse Management System (WMS) and Transportation Management System (TMS) to make operations more efficient.

They integrate easily with your CMS (Shopify, Magento, BigCommerce, WooCommerce, Amazon…) for easy fulfilment operations.

These new 3PL partners are now actors in your e-commerce business growth. 

By capitalising on their expertise, fulfilment companies have created tools to help you increase your conversion rate, client lifetime value, and client retention rate. 

By streamlining your pre-purchase and post-purchase processes, they offer opportunities to boost your revenue and stand out among competitors. 

2. 3PL: What do they do?

A 3PL is also referred to as a fulfilment company, fulfilment warehouse, order fulfilment company, or fulfilment centre. 

3PL companies offer several logistics services, generally including:

  • Transportation management (shipment and reception) 
  • Delivery
  • Warehousing 
  • Inventory management
  • Picking and packing 
  • Kitting (product bundling) 
  • Reverse logistics (returns
  • B2C and B2B order fulfilment process
  • WMS/TMS 
  • Pre-purchase and post-purchase tools and apps 
  • Cross-border logistics
  • Freight forwarding…

3. What are the advantages of 3PL?

According to a McKinsey study, e-commerce logistics costs have been consistently rising since 2010 due to complex needs such as returns management and faster fulfilment. 

Currently accounting for 12-20% of e-commerce revenues, these costs might rise to 15-25% soon due to wage pressure and higher final-mile expenses.

While logistics costs represent a significant portion of your margin, they should be viewed not just as an expense but as an investment. Logistics and operational excellence can also set your brand apart from your competitors. 

Clients expect faster delivery, and a poor delivery experience would stop 85% of online shoppers from ordering again. 

Logistics can serve as a true growth lever for your e-commerce brand, helping increase your LTV.

While you can always grow at your own pace without a 3PL, consider the associated costs of not outsourcing your order fulfilment. 

This includes buying a warehouse, spending a lot of time managing it and hiring a lot of qualified workers. Likewise, you will have to deal with carriers directly. Also, it will be more difficult to handle seasonality and peak seasons like Black Friday or Christmas. And we know how it can easily become a nightmare!

Choosing to partner with a fulfilment company goes beyond outsourcing logistics. 

It's a strategic decision that brings a lot of benefits, reshaping the way your e-commerce operates.

3.1 Cost efficiency

Working with a 3PL partner can provide cost savings, which is one of the main advantages. 

Businesses can benefit from economies of scale and optimise transportation routes by leveraging the expertise of specialised logistics providers.

Except if you have a very strong brand or very high order volume, you will get more attractive prices when working with a 3PL rather than negotiating on your own. 

At the heart of any 3PL company lies transportation management. Whether it's shipping goods across borders or delivering products to the end consumer, third-party logistics providers excel at optimising routes, choosing the right carriers, and ensuring timely deliveries. This orchestration not only reduces shipping costs but also enhances the overall customer experience.

Bigblue Tips
At Bigblue we built a strong relationship with +20 European carriers like Colissimo, Royal Mail, or Correos, to offer our merchants the best prices. 
Also, with our
smart carrier offer, we can select the most cost-effective and qualitative delivery options based on your client’s shipping address. 

3PLs can help you manage your supply chain efficiently and without errors.

Using shared warehousing can reduce logistics costs. You pay only for what you use, instead of building and maintaining oversized facilities.

If you work with a fulfilment centre that already has a good WMS/TMS, you can also save money by not having to invest in pricey technology.

3.2 Customer experience and service level 

As mentioned before, with the recent arrival of new 3PL partners, they can offer you a new way to optimise your pre-purchase and post-purchase experience. 

They can improve your delivery experience, your website conversion rate, your customer service and your returns experience. 

For example, like Amazon, if you provide your customers with a clear delivery promise with an Estimated Time of Arrival (ETA) of their orders, you can increase your product page conversion rate. 

Bigblue Tips
At Bigblue, we designed our solution and features at the forefront of innovation to free you from logistical challenges and allow you to fully focus on your expertise.
Bigblue provides you with access to personalised parcel
tracking emails and pages, ETA displays directly on your product page, and a returns management portal with a printerless option for your B2C and B2B orders.

3.3 Scalability and efficiency 

Picture a well-organised warehouse as the backstage of any well-organised logistics. 

3PL providers excel at managing warehouses efficiently, strategically placing inventory and tracking inventory levels.

This meticulous approach ensures that products are readily available when needed, minimising delays and optimising storage space.

3PL partners play a pivotal role in minimising stockouts and overstock situations.

4. Understanding logistics models: 1PL vs. 2PL vs. 3PL vs. 4PL

Logistics Model 1PL (First-Party Logistics) Description In-house management of logistics Pros Direct control over logistics operations Cons Limited scalability as business grows Suitable For Smaller enterprises with basic logistics needs  Logistics Model 2PL (Second-Party Logistics) Description Collaborative partnerships with external logistics providers Pros Flexibility through outsourcing specific services Cons Lack of comprehensive solutions compared to 3PL Suitable For Businesses outsourcing specific services  Logistics Model 3PL (Third-Party Logistics) Description Specialised logistics solutions Pros Comprehensive suite of services Cons Dependency on external providers; may incur higher costs Suitable For Companies of various sizes requiring comprehensive services  Logistics Model 4PL (Fourth-Party Logistics) Description Central entity coordinating multiple 3PL providers Pros Unparalleled coordination across the entire supply chain Cons Complex implementation; more suitable for larger enterprises Suitable For Larger enterprises with complex logistics needs 

Table: Logistics Models Comparison

5. How does 3PL pricing work?

The cost of 3PL services depends on several factors, the complexity of services required, the scale of operations, and the level of technology used. Larger volumes may lead to better rates, but advanced tech could bring extra costs.

The most common types of pricing will be a minimum flat fee and/or usage-based pricing.

For each order, a cost will be incurred depending on the number of products to pick, pack, the packaging used and the destination of the delivery. 

For example, Bigblue's pricing includes order processing service fees, a subscription to the Bigblue app, and optional Experience Packs for Conversion, Delivery, and Returns, based on usage. 

Our order processing fees cover the complete handling of your products: warehouse reception, storage, order preparation, packaging, parcel shipping, and transportation. And discounts are available as the monthly order volume increases.

6. How to choose a 3PL company?

Choosing a 3PL provider is not just outsourcing logistics, but an important decision shaping your brand's efficiency, growth, and customer relationships.

Begin by assessing your e-commerce needs, focusing on product identification, order volume, and return frequency. Move on to a comprehensive review of your potential 3PL provider, prioritising industry expertise, technology capabilities, their e-commerce platforms integration, and references. Finally, delve into a detailed examination of costs and fees.

To sum up, exploring third-party logistics presents a strategic path for e-commerce success. With benefits like enhancing customer experiences, cost efficiency, and streamlining supply chains, a fulfilment partner, offers valuable advantages. As you think about potential transformations for your business, consider this: How could using 3PL reshape your e-commerce journey? 

Drowning in order fulfilment tasks? Free up your time and resources with Bigblue's comprehensive solution. We handle warehousing, picking & packing, shipping (including eco-friendly options!), returns, and everything in between. Our automation and smart features optimise efficiency, while dedicated account managers ensure a smooth experience. Get a free consultation and see how Bigblue can streamline your operations and empower you to focus on what matters most – growing your business.

Frequently asked questions
Everything you need to know.
What is a third-party logistics model?

A 3PL model involves outsourcing logistics and supply chain functions to specialised external providers, optimising processes and streamlining distribution.

How do you manage a 3PL?

Effective management involves clear communication, defining expectations, setting Key Performance Indicators (KPIs), and establishing a collaborative partnership. Regular reviews, feedback sessions, and addressing issues promptly contribute to a successful 3PL relationship.

What is a 3PL relationship?

A 3PL relationship involves outsourcing logistics and supply chain management functions to a specialised external provider. This collaboration optimises processes, improves efficiency, and streamlines distribution.

What is an example of a 3PL?

In the UK, an example of a 3PL is Bigblue. They offer comprehensive logistics solutions, including warehousing, transportation, and distribution, catering to diverse industries with efficiency and expertise.

What industries use 3PL the most?

Industries such as e-commerce, retail, automotive, and pharmaceuticals heavily rely on 3PL services. Their complex supply chain needs to benefit from the expertise and resources that 3PL providers bring to the table.

How can I monitor my 3PL performance?

Implement performance metrics, like on-time delivery rates and inventory accuracy. Regularly assess these metrics and conduct performance reviews with your 3PL provider. Open communication channels and feedback loops enhance overall visibility and accountability.

What is the difference between a 3PL and a broker?

While both facilitate logistics, a 3PL offers comprehensive services, managing various supply chain aspects. In contrast, brokers primarily connect shippers with carriers, focusing on transportation arrangements without handling additional logistics functions.

What does 3PL and 4PL mean?

3PL, or third-party logistics, involves outsourcing logistics functions. 4PL, or fourth-party logistics, goes a step further by managing and coordinating multiple 3PL providers for a holistic supply chain solution.