What is 3PL? The Ultimate Guide to Third-Party Logistics

Managing your entire supply chain in-house can be a little like playing a giant game of whack-a-mole: you’ve got to keep your eyes on multiple moving parts all at the same time, address problems head-on almost as soon as they arise, and continually try to predict what’s coming next.

This is why (rather than equipping themselves with a rather large mallet and wishing they had several sets of limbs) many business owners opt to outsource their supply chain operations to third-party logistics (3PL) providers — specialist services that handle everything from warehousing to order fulfilment, and many processes in between.

As a business owner, you’d likely prefer to concentrate on core, growth-driving initiatives like product development and marketing than being bogged down with supply chain complexities or inventory headaches. And this is exactly what a third-party logistics provider like Pro3PL empowers you to do.

In this guide, we dive deep into the world of third-party logistics, breaking down the meaning of 3PL, how it works, what it entails, and why more and more businesses are opting to outsource their logistics operations to a third-party provider.

Want to know everything there is to know about 3PL services? Let’s get started.

What is third-party logistics (3PL)?

Third-party logistics (3PL) is when a company outsources its logistics and supply chain management functions to a specialist provider. A 3PL manages various aspects of logistics on behalf of its clients, including warehousing, inventory management, order fulfilment, transportation, and often even freight forwarding and customs clearance.

By leveraging the experience and expertise of a 3PL provider, businesses can focus on core functions while benefiting from the efficiency, scalability, and technology that a dedicated logistics partner can offer — with the partnership often leading to reduced shipping costs, an expanded reach, and ultimately a streamlined, more efficient supply chain operation.

3PLs are often used by ecommerce businesses — where nimble delivery and customer satisfaction are paramount — but this isn’t exclusively the case. Many large enterprises and even Fortune 500 companies outsource their supply chain operations to 3PL providers — and sometimes even work with multiple 3PLs.

How does 3PL work?

Third-party logistics providers manage key logistics functions on behalf of businesses, allowing them to focus on other core areas like product development and sales. While the process can vary based on client needs and the unique makeup of the 3PL provider’s service offering, here’s a rough breakdown of how 3PL typically works:

1. Consultation and discovery. A third-party logistics provider will work closely with a potential client to understand their specific logistics challenges, determining what services the client requires — whether it’s warehousing, order fulfilment, freight shipping, or a combination — to meet their operational needs.
2. Integration and onboarding. During the initial setup phase, the 3PL begins the process of integrating the business’s systems (such as an ecommerce platform or inventory management software) with its own technology, ensuring seamless data flow and allowing for real-time tracking and reporting.
3. Warehousing and inventory management. If applicable, the 3PL will store the business’s products in its warehouse facilities, organise and manage inventory, and leverage advanced warehouse management systems to ensure accurate inventory control and optimised storage efficiency.
4. Order processing and fulfilment. When a customer places an order, the 3PL receives and processes it through the integrated system. They then pick, pack, and prepare items for shipping, ensuring orders are processed accurately and often incorporating custom packaging requirements based on the client’s preferences.
5. Shipping and transportation. Once the order is packed, the 3PL handles shipping by leveraging relationships with various carriers, choosing the most cost-effective and efficient shipping method. The 3PL also provides real-time tracking details, allowing both the business and its customers to monitor shipment progress.
6. Returns management. When a customer returns a product, the 3PL receives the returned goods, inspects them, and manages restocking or disposal of the items — ensuring an efficient returns process and encouraging repeat business.
7. Continuous optimization. Throughout the process, a good 3PL provider will look to continually analyse and improve supply chain performance — whether that involves integrating new technologies, optimising shipping routes, or monitoring inventory levels to meet seasonal demand.
8. Additional value-added services. In many cases, the 3PL also provides add-on services to enhance the client’s overall efficiency and product offering. These might include customised brand-specific packaging, light assembly, kitting, on-pack labelling, or pre-retail solutions such as leaflet insertion.

How does 3PL differ from other logistics models?

Unlike a 3PL, second-party logistics companies (2PL) are essentially contract logistics providers that a company hires to move goods from one location to another. They often own transportation assets such as trucks and ships, but don’t offer additional logistics services such as warehousing, order fulfilment, or inventory management — as a 3PL does.

On the other hand, a fourth-party logistics provider (4PL) is more of a supply chain ‘integrator’ that takes on a slightly more comprehensive role than a 3PL, managing the entire logistics function on behalf of the client — which can often include selecting and managing multiple 3PLs and other service providers. When working with a 4PL, the company effectively cedes control of their supply chain to the provider.

For an in-depth explanation of the difference between third- and fourth-party logistics, check out our guide to 3PL vs 4PL.

What services does a 3PL provider offer?

3PL providers offer a number of different services, and the beauty is you can typically leverage as many or as few of these as your business needs. For instance, you might require a 3PL partner to manage your entire supply chain process from end to end, or you might simply need a specialist freight forwarding solution.

Here’s a breakdown of some of the key services provided by a third-party logistics company:

Order fulfilment

Fulfilling orders involves a number of different steps, where each part of the process must work seamlessly with the next. 3PL companies take care of everything from the second an order is placed to the moment it reaches the customer’s address, including:

• Receiving and processing orders through an integrated order management system
• Picking orders accurately from their specific storage locations
• Packing them securely, incorporating any custom packaging requirements
• Printing and applying shipping labels
• Shipping orders via the appropriate shipping method
• Tracking orders in real-time until successful delivery

Warehousing

Warehousing involves more than simply storing products in a facility. 3PL companies offer a range of warehouse storage solutions, from temperature-controlled storage to easily-accessible mobile shelving. The warehousing process typically encompasses:

• Receiving goods from suppliers or manufacturers and inspecting them for accuracy
• Storing products in designated areas with organised systems for quick retrieval
• Managing inventory levels with real-time tracking systems
• Implementing special storage conditions (such as temperature control) as needed
• Regularly counting and auditing stock to ensure consistency
• Preparing products for quick picking and packing when orders are received

Shipping

Shipping is primarily about getting packages from point A to point B, but it’s not quite as straightforward as that. 3PL providers tackle carrier selection, documentation, and customs clearance for shipping services such as air or ocean freight, as well as other requirements such as:

• Selecting the most efficient carrier and shipping method based on location and cost
• Negotiating discounted shipping rates to reduce costs
• Managing customs documentation for international shipping
• Monitoring shipments in real-time and providing tracking updates to customers
• Ensuring timely delivery and resolving any shipping-related issues

Distribution

Distribution refers to the broader process of managing the movement of goods from a central location (such as a warehouse or distribution centre) to various endpoints like retail outlets, other warehouses, or customers. 3PLs take care of each stage of the distribution process, including:

• Consolidating products for delivery to multiple destinations
• Organising and optimising delivery routes to ensure efficiency
• Managing inventory levels at various distribution points
• Coordinating deliveries to retail outlets, warehouses, or directly to customers
• Tracking product movement through all stages of the distribution network
• Ensuring products are delivered on schedule and to the correct location

Freight forwarding

Freight forwarders are primarily responsible for shipping goods across borders. A 3PL can also act as a freight forwarder by managing the often complex logistics process involved in international transportation. This might include:

• Coordinating transportation via air, sea, rail, or road based on cost and urgency
• Handling all documentation required for customs clearance
• Navigating import/export regulations and ensuring legal compliance
• Managing duties, taxes, and tariffs associated with international shipments
• Providing end-to-end tracking and updates throughout the shipping process
• Ensuring goods arrive efficiently and securely at their international destination

Reverse logistics

As the name suggests, reverse logistics refers to managing returns. 3PLs oversee the entire return flow, from the receiving and inspection of returned goods to restocking or disposing of them. The end-to-end reverse logistics process often involves:

• Receiving returned products from customers or retailers
• Inspecting returned items for damage, resale potential, or disposal
• Restocking or refurbishing products for resale if applicable
• Managing repairs, recycling, or disposal of unusable items
• Handling the reverse flow of goods efficiently to minimise costs

Value-added services

Value-added services provide the icing on the cake of your logistics process, with most 3PLs offering add-on benefits such as custom packaging and bespoke kitting on top of their standard logistics offerings. These added services might include:

• Customising packaging for branding or marketing reasons
• Kitting and assembling products for special promotions or bundles
• Labelling products with specific information like barcodes or serial numbers
• Inspecting products for quality assurance before shipping
• Managing light manufacturing or product modifications as needed

What are the benefits of using a 3PL?

Whether you’re a small, independent online business or an established player in the ecommerce space, choosing to work with an outsourced logistics partner like Pro3PL can have a whole host of benefits — from streamlining your supply chain process, to reducing your costs, to supporting your business’ growth.

1. Cost savings

When you factor in storage space, labour, and tech requirements (to name a few), managing logistics can be costly when done in-house. This is one of the primary reasons businesses choose to outsource inventory management to a 3PL provider — working with a third-party can reduce capital expenditure while introducing more cost-effective overall processes.

• No up-front infrastructure costs. Most third-party logistics providers already have established infrastructures, often encompassing their own warehouse, technology, and transportation services. This means businesses avoid the capital expenditure associated with owning or leasing warehouses, purchasing vehicles, or investing in in-house tech.
• Reduced labour costs. Outsourcing supply chain operations to a team of experienced supply chain management professionals reduces the need to recruit, train, and manage in-house logistics staff. 3PLs handle all labour management, even during peak seasons where a business might otherwise need to temporarily expand their workforce.
• More cost-effective supply chain management. Inaccuracies and inefficiencies cost money. But by providing real-time visibility, advanced analytics, and efficient stock management, a 3PL can optimise inventory levels and reduce carrying costs — for example, by preventing potentially costly overstocks or stockouts.

2. Streamlined supply chain management

Typically, third-party logistics services prioritise efficiency above (almost) all else. Whether it’s fulfilling orders with the utmost speed and accuracy or using analytics to provide real-time inventory reports, a 3PL provider ensures your supply chain runs like a well-oiled machine while continuously looking for ways to enhance the operation even further.

• Efficient inventory management. Managing a supply chain has many moving parts, and a single inefficiency can cause significant bottlenecks. 3PLs utilise various techniques such as just-in-time (JIT) inventory, demand forecasting, and real-time tracking to ensure the entire logistics process constantly functions at its optimal level.
• Seamless tech integrations. Whether it’s a warehouse management system or order fulfilment software, the best 3PLs invest in state-of-the-art technology. Better still, by integrating these systems with their clients’ own infrastructure, they ensure seamless data flow, reducing errors and improving overall operational efficiency.
• Focus on core competencies. By outsourcing logistics operations to a 3PL, businesses can concentrate less on supply chain complexities and more on core business functions such as product development, marketing, and customer support — meaning they can dedicate time and resources to growth-focused activities.
• Continued improvement and innovation. No matter how slick a supply chain operation might be, there’s usually room for improvement. A third-party logistics provider like Pro3PL is continually reviewing processes, making enhancements, and introducing new technologies to adapt to market conditions and maintain maximum efficiency.

3. Increased scalability

Particularly in fast-moving industries such as ecommerce, scalability is crucial. The capacity to seamlessly scale operations up (or down) in line with business needs and consumer demand means a business can respond quickly to changes in the market, handle dramatic increases in order volume, and grow without sacrificing the quality of their service.

• Agility around seasonal peaks and troughs. Periods such as Christmas and Black Friday can result in sudden fluctuations in demand. A 3PL enables businesses to meet this challenge cost efficiently by affording them the flexibility of scaling up during peak periods and down again when business is slower.
• Continuous business growth. For a business, growth might mean increasing market share, generating more revenue, or expanding into new territories. Either way, a third-party logistics provider can scale its operations as your business grows, meaning you’ll be able to handle an increased order volume or reach new customers while maintaining the high standards you’ve set.
• Advanced technological capabilities. Any 3PL provider worth their salt is always seeking out and investing in the most up-to-date technology — from integrated warehouse management software (WMS) to automated logistics processes, access to this technology enables businesses to scale quickly and efficiently without the need for intensive labour or unmanageable costs.
• Vast range of resources. Most 3PL providers have established networks encompassing warehouses, distribution centres, and transportation fleets. This allows businesses to be agile, adaptable, and target rapid growth without significant capital investment.

4. Access to unique expertise and support

One of the often overlooked (but most significant) advantages of partnering with a 3PL is that you gain instant access to a wealth of industry-specific knowledge and experience. Insead of having to recruit and train a team of supply chain specialists, you have one right on hand — with the best 3PL providers offering dedicated, personalised support and guidance.

• Specialised industry knowledge. A good 3PL provider is always backed by a team of industry experts — if we do say so ourselves. From the intricacies of inventory management to the ramifications of reverse logistics, this know-how means they can often solve complex problems in a way the average in-house team might not be able to.
• Dedicated support. This knowledge and experience also allows 3PL service providers to offer informed, specialist support when businesses require it, often delivering a personalised experience that’s tailored to the unique makeup of their clients’ supply chain needs.
• Data-driven insights. With access to advanced analytics and reporting tools — and the ability to leverage them effectively — 3PLs can provide deep, valuable insights into business’ supply chain logistics, helping them make data-backed decisions and implement new solutions quickly and efficiently.

5. Lower risk and increased compliance

Because supply chain management is inherently complex, it’s often fraught with risk: the risk of business disruption, for example, or customer dissatisfaction. There are also a lot of legal and compliance regulations to abide by, particularly if you’re shipping internationally. A key advantage of working with a 3PL is ensuring compliance while mitigating potential (operational or reputational) risks.

• Compliance with industry standards. From import/export laws to customs requirements and environmental regulations, 3PL providers are well-versed in the standards governing different regions and industries. This knowledge reduces the risk of fines, penalties, or reputational damage.
• Disaster contingency planning. 3PLs typically have contingency plans for various unexpected scenarios, whether it’s a natural disaster, a strike, or a sudden spike in demand. When an unforeseen event threatens to derail your supply chain, your 3PL provider can ensure your logistics operations continue with minimal disruption.
• Data protection and cybersecurity. With an increasing reliance on digital platforms for logistics management, data security is always a concern. 3PLs invest in robust cybersecurity measures to protect sensitive information (such as customer data) from breaches and cyber-attacks.

When should your business consider 3PL?

While the criteria for third-party logistics is wide-ranging and there are multiple potential benefits to using a 3PL — no matter the size or nature of your business — there are a number of questions you can ask yourself to determine if 3PL is right for you. If any of the following apply to your business, you should certainly consider partnering with a 3PL provider.

1. You have a lack of in-house logistics expertise

While many large enterprises employ large global teams and manage their logistics ‘in-house’, the majority of businesses simply don’t have the budget, resources, or expertise to do this themselves. If logistics is not a ‘core competency’ for your business, a 3PL can bring specialised knowledge and manage multiple elements of your supply chain on your behalf.

2. You have a complex logistics process

Most logistics processes have a degree of complexity, but some businesses may have more intricate requirements than others — an ecommerce business might sell through multiple channels or have very specific packaging needs, for example. A good 3PL has usually ‘seen it all’, and can typically handle even the most complex and bespoke supply chain needs.

3. You’re experiencing rapid growth

If your business is growing at pace, at some point you may find yourself unable to handle the surge in orders and increased customer demand — at least not without sacrificing the quality of your service. 3PLs often work with growing companies, providing the scalability and flexibility needed to manage increasing volumes without requiring heavy investment in infrastructure or staff.

4. You have significant seasonal spikes

Many businesses experience fluctuations in demand throughout the year, which can often put a strain on their supply chain operations — particularly if those spikes are unanticipated. Since most 3PLs offer the flexibility to scale operations up or down in line with demand, this allows your business to respond to seasonal fluctuations without incurring large costs or experiencing bottlenecks.

5. You’re looking to expand to new markets

If your business has designs on global expansion, a 3PL partner can provide local market knowledge, international shipping expertise, and an established global logistics network. A company planning to enter North American or Asian markets, for example, might use a 3PL to handle customs clearance, warehouse storage, and distribution in those regions.

6. You want to reduce supply chain costs

Managing logistics in-house can be costly as well as complex — encompassing warehousing costs, employee salaries, vehicle maintenance expenses, and more besides. Partnering with a 3PL reduces the need for up-front capital expenditure, and by leveraging economies of scale they can typically offer their services at very cost-effective rates.

What to look for in a third-party logistics provider

As is true for many businesses, not all third-party logistics companies are created equal. The quality of service can vary, for one thing, while different providers often specialise or excel in certain areas — meaning one provider may be more suited to your business than another. It’s essential to know not only what makes a good 3PL partner, but also the specifics of their service offering.

Integration capabilities

A key consideration is whether your in-house systems are compatible with the 3PL’s technology. Most 3PLs will offer some kind of integration capability — at Pro3PL, our warehouse management system integrates with Shopify, Magento, SAP, and more — but it’s essential to ensure seamless data sharing between platforms.

For example, if your ecommerce store is running on Shopify, you’ll want a 3PL partner whose WMS features a dedicated Shopify integration. This enables you to automate key logistics tasks, access real-time inventory updates, and get tracking information without having to jump constantly from one platform to another.

Pricing and cost-effectiveness

While cost alone shouldn’t be a sole determinant, it’s obviously essential that your 3PL provider can offer the services you need at a competitive price which suits your budget. A good 3PL will be transparent about their costs and, on request, be able to provide a detailed yet straightforward quote based on your specific needs.

But it’s not just about how much you’re willing to pay. Think about the value you get: does the 3PL provider offer value-added services without significantly increasing costs? Do they have the ability to scale up and down in line with demand, so your costs don’t spiral and you avoid overpaying for service levels you don’t require?

Industry expertise

Just as many 3PL providers specialise in certain service areas, some are more qualified in specific industries than others. So while you’ll naturally want your 3PL provider to have an expansive knowledge of logistics overall, it’s also important to understand whether they’re a relative ‘jack of all trades’ or if they have specific, proven expertise in your industry.

Let’s say you’re shipping pharmaceuticals and healthcare products. You’ll want to look for a 3PL partner (like Pro3PL) that has a track record of managing logistics in this sector, since the requirements can be strict and unique — they might need to handle sensitive materials, for example, or store and transport items in a temperature-controlled environment.

Dedicated support

Particularly if you’re a small business and you don’t possess much in the way of in-house logistics expertise, having a 3PL provider who’s on hand to offer dedicated support and guidance is crucial. If there’s an issue, can you trust your 3PL partner to offer a quick resolution? Can you rely on one-on-one support over a generic email address or ticketing system?

You can learn a lot about the level of support you’ll receive during your initial interactions with a 3PL provider: if you requested a quote or consultation, were they quick to respond? Did they provide helpful information? If you feel treated like a number rather than a valued potential customer, you’d be advised to look elsewhere.

Bespoke, customisable services

Any good 3PL provider will understand that each business is unique — they each have their own objectives, challenges, quirks, and so on. And that’s why any good 3PL provider should also have the capacity to tailor their services to your business’s unique needs: to use a fashion-related analogy, think less ‘off the peg’, more made to measure.

If your needs are quite basic, of course, you might be fine with a fairly generic, out-of-the-box logistics solution. But remember that these needs will almost certainly evolve as your business grows, and your 3PL provider should be able to customise its offering so that it can always meet these changing requirements.

Choosing the right 3PL partner is a critical decision that can significantly impact the success of your business. The right provider will not only streamline your logistics operations but also offer the flexibility, technology, and expertise you need to scale and meet growing customer demands.

By aligning with a 3PL that understands your unique needs, you can focus on what truly drives your business forward — whether that’s product innovation, customer engagement, or expanding into new markets. To book a consultation with Pro3PL and find out how we can take your supply chain from sluggish to slick, get in touch today.