3PL (Third Party Logistics) Advantages and Disadvantages

Introduction

Anyone familiar with the world of eCommerce shipping knows how important third-party logistics or 3PL is to the success of an online business. The advantages of 3PL are very commonly listed everywhere.

From picking, packaging, and delivery, third-party logistics providers take care of eCommerce businesses' entire order fulfillment process.

The massive growth of eCommerce in India and worldwide has led to the mushrooming of numerous 3PLs.

However, online stores should also consider a few disadvantages of third-party logistics when hiring them to manage shipping operations.

Deciding which 3PL provider is best for your e-commerce business will come after thoroughly understanding how they work in eCommerce shipping and logistics.

In this article, we will look extensively at the advantages and disadvantages of third-party logistics services. But first, let's find out what a 3PL is and its role in the shipping logistics industry.

What is Third Party Logistics or 3PL?

In eCommerce logistics, 3PL is the service provided by third-party couriers and logistics software companies to online stores in shipping and order delivery.

A 3PL takes care of order procurement, storage, warehousing, stock management, labeling, picking, packing, and delivery to the end customer.

In general, online companies relegate the responsibility of shipping and order fulfillment to these providers. Research shows that working alongside 3PLs helps eCommerce businesses to scale up much faster.

Most eCommerce companies start outsourcing shipping and logistics to third-party logistics services because of their advantages. As an online store grows and receives larger orders monthly, 3PL provides its customers with a smooth and streamlined shipping and delivery experience.

A third-party logistics provider can store items in its warehouses, manage stocks, replenish them when necessary, and finally deliver the item when a customer orders.

Apart from these shipping services, a 3PL also provides customized packaging, picking, kitting, bundling, customs clearance, etc., for eCommerce retailers. 

What are The Top 10 Advantages of 3PL or Third Party Logistics?

The advantages of 3PL logistics are immense. There are multiple reasons why so many eCommerce companies worldwide choose to work with a third-party logistics provider.

Some eCommerce businesses, while starting, decide to manage shipping in-house. This is a viable option for a retailer when order volumes are low and logistics manageable.

But as orders multiply over time, choosing to work with a 3PL is a good idea. Let's find out all the advantages of working with a third-party logistics partner for eCommerce business owners.

1) Lower Shipping Prices

One of the biggest advantages of 3PL is the cost-effectiveness it provides. Third-party logistics providers work with many different companies. For this reason, they can offer individual eCommerce companies much cheaper and attractive shipping prices.

Managing logistics in-house is an extremely costly investment. 3PL companies, on the other hand, can use their economy of scale to provide beneficial shipping services at lower rates.

2) Speedy Delivery

Since 3PLs specialize in shipping services, they operate a multitude of delivery fleets. With this, shipments are easily transported from one place to the other in a time-sensitive manner.

Another advantage of third-party logistics is that they have several warehouses scattered throughout the country. Therefore, they are much better equipped to deliver orders faster to customers globally.

Since Amazon normalized one-day delivery to customers, the eCommerce logistics providers have upheld this norm.

They can offer lightning-fast deliveries to customers even at the shortest notice. This is especially helpful for dropshipping businesses shipping to multiple locations.

3) Warehouse Management

Warehousing solutions are another major advantage offered by third-party logistic providers. As part of warehouse management, 3PL companies procure the inventory of an eCommerce company and store it in several of their warehouses.

When customers place an order, they proactively and systemically fulfill it and ship it from the nearest warehouse to the destination.

In this way, 3PLs not only take on a load of managing inventory but also make faster deliveries. Young eCommerce companies strapped for space should consider using warehouse management services offered by 3PLs.

4) Inventory Management

Another benefit provided by third-party logistics is inventory management. Ecommerce companies can rely on 3PLs for multiple factors. They can manage their inventory and keep stock of which items are available.

Other benefits are replacing stock as and when required and updating inventory in case of product returns or exchanges.

All inventory is categorized into SKUs and stored in racks and bins in a warehouse. Most 3PLs will use a WMS (Warehouse Management Software) or OMS (Order Management Software) to automatically update inventory and display fresh stock on the company's website or virtual marketplaces.

5) Real-Time Order Tracking

A good order tracking feature is essential to maintaining transparency and communication between ecommerce companies and their customers.

Today, consumers expect to know where their order is at all times. To make this possible, third-party logistics companies provide a self-serve order tracking page.

Customers can easily access their order status by entering their Order Id or Tracking Number. Many 3PLs even send order update notifications to customers through Emails and SMS. By updating your customers about their order's whereabouts, ecommerce companies gain trust and brand loyalty. 

6) Numerous Payment Gateways

A fundamental advantage of 3PL is the number of payment gateways they offer customers. The lack of convenient payment options at the checkout stage greatly contributes to cart abandonment.

3PLs are equipped to handle cash payments like Cash on Delivery (COD), bank transfers, UPI, Credit/Debit cards, and even Pay on Delivery options. Providing these many payment options to customers means fewer chances of cart abandonment and greater customer satisfaction at the time of purchase.

7) More Delivery Options

Amazon Prime's Same Day Delivery has made eCommerce third-party logistics companies gear up for the same task. Since customers want faster deliveries than ever, 3PLs have offered Same day, Next Day, 2-Hour, and hyperlocal delivery services.

By tying up with a 3PL, eCommerce companies can reap the benefits of optimal delivery services. The faster the delivery time, the happier the customer. And everybody knows that happy customers are an asset to any business. 

8) Increased Customer  Satisfaction

Customers like hassle-free delivery. 3PL companies offer superior delivery fleets, customized packaging, timely notifications, and transit orders without damage or breakage. As eCommerce companies grow out of their initial stages and scale up, they will want to enhance their customer satisfaction rate.

A higher customer retention rate means more and more customers return to the store, fewer product returns and exchanges, and a loyal community of customers. The advantage of 3PL is that they can help you reach that phase much faster without expending extra capital to rent bigger warehouses. 

9) Customised Shipping Services

Customization and personalization are the keys to reaching your customers' hearts. Here, third-party logistic companies significantly assist brands. They provide several customized shipping services for B2B and B2C sectors.

3PLs can print customized shipping labels and create personalized packaging for special orders. They also handle branded packaging. Customized shipping services naturally come with added costs. Therefore, speak to your 3PL provider about extra charges beforehand.

10) Insurance and Other Benefits

If your eCommerce store deals in jewelry, precious stones, designer watches, or other valuable goods, you must prepare an insurance plan for shipping. The biggest advantage of third-party logistics is that they have insurance plans to cover any losses you might suffer in the case of any shipping mishap.

Insurance plans act as a fail-safe in the case of any unforeseen event. Ensure your insurance plan does not make you the sole bearer of the loss. Selecting a plan that puts the onus on both parties is important, and 3PLs help you negotiate these contracts.

What are the Top 9 Disadvantages of Third Party Logistics Providers?

The list above shows how 3PLs can become indispensable to an eCommerce shipping operation. The advantage of third-party logistics is so much that eCommerce stores often forget to consider the disadvantages of using third-party logistics services.

Although we agree that the disadvantages of 3PL may not surpass their advantage, it's still worth something to look into. Establishing direct contracts with carriers has a lot of fringe benefits that can help you push and shove your way to the front of the pack.

However, juggling multiple courier partners comes with various obstacles that must be considered. Below are some potential 3PL disadvantages that every Ecommerce company should scrutinize before hiring one for their business. 

1) Difficulty Tracking Multi-Carrier Orders

One of the major difficulties you’ll encounter when directly associating with multiple courier partners is the difficulties in real-time multi-order tracking. Tracking your orders is a supremely important part of the e-commerce process.

Without efficiently keeping an eye on the movement and status of orders placed on a wide-scale level, things can get pretty chaotic! This can be a disadvantage of 3PL that many eCommerce companies face.

2) Separate Allocation of Orders

Another disadvantage of 3PL is order allocation which cannot be completely monitored at times. Allocating and assigning a courier partner to fulfill an order doesn’t seem like a big task once an order is placed.

However, if you’re tied up with five courier partners, each may be assigned anywhere between 20 to 50 orders per day, depending on their serviceability. You’ll depend entirely on customers and courier partners to inform you of delivery exceptions.

3) Independent Communications

Each carrier has to be reached out to separately in case of any issues with an order. While the speed of communication may now be unhindered by a middleman, 3PLs do not always enquire about individual orders.

It is inconvenient and time-consuming for retailers to deal with individual order issues to reach out to each carrier.

Miscommunications can also occur without API integrations to reach out to them more for streamlined communication. This, again, is the disadvantage of using third-party logistics for shipping operations. 

4) Carrier Performances Monitored Separately

There’s a major consequence to orders being tracked and managed with each carrier independently. The performance of each courier partner also has to be analyzed separately based entirely on inputs provided by each carrier. And whatever metrics and analytics you have resources for. 

5) Separate Carrier Platforms

The biggest barrier to monitoring carrier performance is that each courier partner maintains separate websites or backends to track orders' status.

This means that the data required to monitor each carrier’s performance has to be individually pulled by you from each carrier’s respective website. This can be another disadvantage of using third-party logistics companies.

6) Different SLA Terms

Given the wide range of pin codes and the variety of specialized services, you’ll use, each carrier demands a different focus from you. This goes doubly when it comes to creating SLA terms.

Absolute clarity of your operations and necessities is required at this point. Different SLA terms can be a disadvantage in working with third-party logistics partners.

While some terms may be standard, the advantages of working with different carriers can only be enjoyed when you negotiate the best terms.

This means knowing what you want from each of them - access to remote areas, better product safety in transit, or discounted rates. A lack of preparation can result in more hidden costs and less utilization of necessary services.

7) Different Terminology Used by Carriers

Communication is key in relationships with your customers, courier partners, or significant other. All it takes is one misspoken word to ruin your dinner plans completely. Similarly, the entire delivery process for each order can be shaken with just a few misprints or alternate phrasing. 

8) No Standardised Shipping Labels or Packaging

Customized shipping labels and packaging are a great way to raise brand loyalty and keep customers thinking about you. There’s a reason why McDonald’s puts its iconic giant yellow M everywhere it gets the opportunity, on every to-go bag and every burger wrapper. 

A uniform process and template for shipping labels also reduce the likelihood of any possible confusion during transit.

However, most of the top courier companies maintain their shipping labels. Therefore, the customer receives a shipment with a different label, making them less likely to identify with your brand.

9) No Standardised Customer Communications

There’s nothing more exciting for an online shopper than receiving a message that says their order is on the way.

However, these messages are usually drafted by carriers who use their phrasing and language. The same customer may place an initial order delivered by Carrier A and then a second order delivered by Carrier B.

Carrier A may say an order is first “dispatched,” then “in transit,” then finally “on the way” to the customer. Carrier B, however, first says when the order has been “picked up,” after which it is “on the way,” and then finally “out for delivery.”

The result is a confusing barrage of messages that leaves the customer wondering what each message means and where their order is. And 3PLs seldom play a part in sorting out the terminology jumble. 

Final Conclusion

As is clear from the lists above, the advantages provided by 3PL far outweigh its disadvantages. However, eCommerce companies must enter an agreement with third-party logistics providers knowing their advantages and disadvantages.

Ecommerce stores can reach newer markets, engage with new customers, provide hassle-free shipping, and much more with the help of 3PLs.

On the other hand, differences in business values and loss of control can deter eCommerce companies from working with third-party logistics.

Whether you work with a 3PL depends entirely on your business's needs and resources. We hope this article helps you understand all the advantages and disadvantages of hiring a third-party logistics provider. 

FAQs

1) What are Third-Party Logistics or 3PL?

Simply put, 3PLs are companies that perform logistical processes on behalf of an eCommerce business. Their role encompasses three areas: warehousing, order fulfillment, and shipping. 3PLs emerged in the decades of 1970s and '80s when businesses began to outsource their inbound and outbound logistics.

Moreover, with the growth of the eCommerce industry, 3PLs have evolved their roles to include advanced inventory management, picking and packing, and shipping. 3PLs run on technological innovation and nowadays uses state-of-the-art robotics technology for faster and more efficient logistics.

2) How to choose an ideal 3PL partner for any eCommerce business?

All 3PLs have a fundamental role in streamlining and growing an eCommerce business. They receive the inventory, strategically manage SKUs, and ensure optimal picking, packing, and shipping. However, an excellent 3PL will have more than these elementary features.

To find an ideal 3PL partner, you can first analyze if the 3PL of your choice fulfills some of the most on-demand customer needs.

First, try to see if it offers two-day shipping. More than two-thirds of global customers expect fast, affordable, and reliable shipping within two days of placing their orders. A 3PL can negotiate charges with shipping carriers to bring down costs. Ideally, your 3PL should be able to do the same.

In line with the above statement, a 3PL managing distributed inventory can give you the leverage to offer two-day and even same-day shipping. A 3PL having several warehouses across a region or a country can easily split inventory and store them closest to your customer for faster fulfillment.

Moreover, if you are a D2C or B2B brand, ensure that your 3PL is ready to handle your business model. They should offer retail dropshipping, multichannel and omnichannel logistics, and multichannel inventory management.

Other specific functions include returns management, kitting and bundling customizations, custom packaging, and global shipping capacities. 

3) Should you outsource your logistics to a 3PL?

From a cost-benefit perspective, outsourcing to 3PLs can be a good option if you have a large order volume but not the adequate manpower and resource to handle the order fulfillment. 

Moreover, in many instances, 3PLs offset geographical limitations and operational risks and leverage technology to usher in more profits than in-house fulfillment. 

Moreover, 3PLs have the expertise in planning procurement, managing inventory, and collaborating with several shipping providers and government agencies.

They are adept in managing transportation, booking freight and shipment, negotiating prices, and working in an era of digital logistics. All-in-all, outsourcing to 3PLs, especially if your monthly order volume has surpassed 5000, is a good strategy.