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What is a 3PL?

Predicted to nearly triple in market size by 2030, third-party logistics (3PL) has become the go-to strategic imperative for eCommerce retailers seeking to maximise their growth. As competition has increased in the 3PL space, the need to differentiate and offer value-added features has too. While in the past, fulfilment warehousing was more of a commodity, providers are innovating, offering features such as inventory analysis, customs clearance, manufacturing, outsourced customer service, and sustainability initiatives.


The History of Third-Party Logistics (3PL)

Since the dawn of agriculture, there was a need to store and stockpile goods. Archaeological evidence indicates that the Ancient Egyptians were highly skilled in designing logistical systems. The core goals (transportation, sourcing of raw materials, distribution of essentials) of logistics found in Ancient Egypt have largely remained the same in modern business logistics – only the technology and execution of those goals have matured.

It wasn’t until the Industrial Revolution, and mass production, that warehousing and storage were perceived as efficiency drivers. The technological revolution in the 1960s saw the development of the first automated storage and retrieval systems, the basis for future warehouse management systems (WMS). The birth of online commerce in the 1990s led to exponential growth in demand for fulfilment centres and increasingly sophisticated order processing technology.

The Current State of 3PL Services

Ecommerce fulfilment, and related search terms, are typed into Google tens of thousands of times each month, and according to Google Trends, this has been an upward trajectory:

The global 3PL fulfilment market size was valued at $97 billion in 2022, and a compound annual growth rate (CAGR) of 13.9% is anticipated until 2030. If we take 1.139 and times it by the power of 8 (years), this is equivalent to 283% growth over this period.

How 3PLs Work for eCommerce Retailers

Working with a 3PL is a multi-stage process, beginning with shopping around to find the right one. This involves assessing their warehouse locations, client feedback, eCommerce platform integrations, carrier partners, pricing, and metrics such as picking accuracy. A recent study found 77% of negative reviews are related to post-checkout, i.e. order processing, delivery, returns, and customer service, so checking 3PLs’ clients’ customer feedback is essential.

Once you have found your ideal 3PL, negotiation begins, and you agree on KPIs (key performance indicators) and OKRs (objectives and key results) to align your performance expectations. Once your contract is signed, client onboarding begins.

During onboarding, you will be introduced to your account manager, and the 3PL’s technical support team will integrate their WMS with your sales channels, such as Shopify, eBay, and Amazon. Your product range will be mapped out against available shipping options, considering dimensions, weight, insurance, and customs requirements.

Your supplier(s) will now ship to the fulfilment centre(s). The ‘goods-in’ team will break down your pallets and containers, and distribute the products to picking locations. At the point of sale, a picking note is generated, instructing the picking team to collect your order for packing and shipping.

At the packing station, orders are arranged by courier provider, ready for collection. The 3PL will have established relationships with domestic and international courier providers and will receive collections daily.

The Different Types of Logistics Outsourcing (and Insourcing)

3PLs are the most common type of logistics outsourcing, varying in terms of integrations, product types, client locations, and other variables such as customisation, scalability, and storage preferences (e.g., dry or frozen). Some fulfilment houses specialise in garment cleaning and ironing, ready for resale. However, there are other types, ranging from first- to fifth-party logistics.

1PL vs 2PL vs 3PL vs 4PL vs 5PL:

1PL is when a company delivers its own goods to the customer. Some major high street retailers have their own delivery vehicles, such as AO, who offer both delivery and installation via their own network.

2PL refers to parcel, packet, and mail courier firms, such as DHL, Parcelforce, UPS, and Royal Mail.

3PLs are fulfilment centres that work with shipping carriers.

4PLs are firms that manage the outsourcing of fulfilment on your behalf, such as annually reviewing pricing and negotiating contracts.

Specialising in deeper supply chain support, 5PLs manage the outsourcing of multiple fulfilment centres and even elements such as manufacturing.

Is Amazon a 3PL?

Amazon is a complex entity. While it began as, and remains, an online marketplace, Amazon now offers FBA services, which stands for ‘Fulfilment by Amazon’. While 3PL firms such as FastPack Fulfilment are agnostic regarding the eCommerce platforms and marketplaces their clients sell on, FBA is purely for the Amazon sales channel. While FBA gives you direct access to Amazon’s Prime subscribers, their fees are usually higher, and they offer minimal order customisation options. Many eCommerce retailers will work with a 3PL and also Amazon FBA to maximise sales opportunities, although this means placing stock in more than one geographic location. At FastPack we also offer a range of FBA services and storage.


The Benefits of Third-Party Logistics (3PL)

Working with a 3PL means you will usually only pay for what you use. Rather than having to invest in building or renting your own warehouse operations, hire and train staff, develop your own systems and processes, and utilise an outsourced WMS and barcode scanning technology, a 3PL can take care of these things on your behalf.

An eCommerce fulfilment specialist can also help you scale, and thanks to collaborative buying power, a 3PL can give you access to ‘pooled volume’ discounted shipping rates. A best-in-class fulfilment provider will also take the time to really get to know your business and help you grow by introducing technology partners that complement the 3PL’s services. For example, a Shopify retailer might require a new website or be struggling to generate a return on investment from paid channels. While a 3PL won’t directly help with this, they might have a partner agency contact who can.

Inventory analysis tools, such as the above, can be offered by third-party logistics providers to give retailers full visibility of order processing carried out by the fulfilment centre. This type of technology can help predict when to, or not to, order new stock to minimise understocking and overstocking.

The Drawbacks of 3PLs

Working with a 3PL means you will need to give up some control. There is usually a bedding-in period, which is why it makes sense to run some test orders before fully switching to a new fulfilment warehouse to identify potential gaps in service quality. Some 3PLs will work with smaller businesses shipping 10-30 items per day, whereas others will demand a minimum of 300 daily orders. It might not be cost-effective for a startup to utilise a 3PL because they have very little data to predict order volumes. However, for startups experiencing strong and persistent growth, such as going viral on TikTok, a 3PL will usually be more willing to help.

The Future of Logistics Outsourcing

The future of third-party logistics will be determined by economic factors such as land availability, retail decision-makers’ and consumers’ expectations. Online shoppers will increasingly expect fast and free shipping, speedy returns, and greater delivery progress visibility. Consumers will demand personalisation, but not at the cost of sustainability, placing pressure on firms to offer diverse packaging options while minimising wastage. 3PLs will be expected to pivot and evolve to meet new trends, such as second-hand products and slow living, in which consumers can opt for eco-friendly delivery and packaging options where delivery speed is less important. Ultimately, an online retailer must be able to offer their current and future ideal customers what they demand, on their terms, profitably, and getting logistics outsourcing right is key to achieving this goal.

At Fast Pack Fulfilment, we provide comprehensive fulfilment services tailored to the UK market, helping eCommerce retailers streamline their operations and enhance customer satisfaction. Get a free quote today for our efficient and accurate Fulfilment service UK.


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