What is 3PL (Third-Party Logistics) & How Does It Work?
Third-party logistics (3PL) has been growing in popularity in the UK over the last five years (2016-2021) with a steady annual increase of 7%.ย Globally, 3PL is a multi-billion dollar market which expected to reach a value of $1,789.94 billion by 2027. To understand the reasons behind this sustained growth, we will explain how to define 3PL, how it works, the pros and cons of the model, particularly for EU logistics.What is 3PL?
Third-party logistics, also known as 3PL, relates to an outsourced logistics model where a third-party service provider takes over the supply chain logistics for your business. A 3PL company can organise and execute everything from warehousing and inventory management to order fulfilment, pick & pack services, distribution and even freight forwarding.ย The 3PL order fulfilment process goes as follows:- Your inventory is managed and stored in the 3PL warehouse
- Orders placed on your site are sent to the 3PL provider (manually or automatically)
- Each item is picked and packed by a warehouse staff member on the 3PL team
- Each order is labelled and sent out for delivery
- The order is delivered to the customer either by the 3PL provider or by their shipping partnerย
- The order progress is tracked on a digital platform where you can oversee the deliveryย
2PL vs 3PL vs 4PL
If you are researching various outsourced logistics models, you will inevitably come across 2PL, 3PL and 4PL. Hereโs how to differentiate between the three:- 2PL: You are responsible for warehousing, but you use a courier service to deliver your goods
- 3PL: The 3PL service provider not only ships but also stores goods, manages inventory, and picks and packs your goodsย
- 4PL: Adding another layer to the 3PL service, 4PL service providers manage the entire supply chain; they become the single point of contact between your business and all your fulfilment partners.ย There are many differences between 3PL and 4PL which each have costs and benefits.
3PL vs Freight Forwarding
You may also struggle to differentiate between a 3PL provider and a freight forwarding provider. The difference is that a freight forwarder, unlike a 3PL provider, only organises the shipping process but doesnโt execute it. Their job is to negotiate contracts, maintain communication with different carriers and ensure the freight is delivered as expected.ย
What services do 3PL providers offer?
Outsourcing e-commerce fulfilment can take a huge burden off your shoulders. This is because 3PL service providers can do everything related to logistics, allowing you to focus on other areas of your business, such as product development, sales and marketing. Hereโs what a third-party logistics partner can do for you:ย| Service | What it means |
|---|---|
| 3PL Warehousing | Modern distribution centres provide storage, shipping and returns handling services. |
| Inventory Management | 3PL experts help you handle seasonal changes in demand and optimise your inventory management using digital tools. |
| Pick and Pack | Once an order is placed, the 3PL provider picks the items, packs them securely and places all the necessary labels and documentation. |
| Shipping | Whether they have their own fleet or work with a delivery service provider, 3PL companies deal with the shipping of all orders. |
| Returns Handling | You can arrange for your 3PL partner to handle returns on your behalf, with returned stock logged back on the inventory system. |
| Customs and border declarations | A 3PL can file the import and export paperwork now required on UKโEU trade, so goods keep moving. |
3PL and post-Brexit customs
One reason UK firms outsource logistics has grown sharply since this guide was written: the border. New import controls now apply to goods moving between the UK and the EU, and getting the paperwork wrong can hold a shipment at the border.What changed at the border
The UK is rolling out the Border Target Operating Model (BTOM), its phased set of import rules. Full checks on many EU goods began in 2024, and from 31 January 2025 a Safety and Security declaration is required for all imports from the EU. This means extra admin is required on every relevant shipment.ยHow a 3PL takes this on
A third-party logistics partner that offers European delivery can act as the customs intermediary, filing declarations on your behalf and keeping goods moving. For a business selling into or out of the EU, that removes a job most teams are not set up to do, and is now as much a reason to use a 3PL as storage or shipping.Are 3PL logistics the right fit for your business?
The 3PL model is used by millions of e-commerce businesses across the globe, but how do you know itโs the right choice for your company? Well, if the below points apply to you, then you should probably look into it.You are struggling to answer the demand
Business growth is good but if your business seems to be growing faster than you can handle, then you may need some external help. A significant increase in order numbers can make it hard to deliver on time and late deliveries can cause customer dissatisfaction and give you a bad reputation. 3PL providers have the capacity to immediately take over the fulfilment of large orders.ยYou are running out of storage space
More sales mean more inventory needed but if you are holding your inventory in-house itโs very likely that you will outgrow your current storage facilities. Instead of investing in buying or renting multiple warehouses in different locations, you can simply choose a 3PL warehousing partner to take care of inventory stocking for you.ยYou are planning to grow your business
Whether you are planning to target new markets nationwide or internationally, or if you are trying to expand your product offering significantly, your current infrastructure may not be able to support this growth. Partnering up with a 3PL company ensures that the logistics are handled for you in a professional manner using established routes and relationships which saves you money, time and effort.ย Still unsure? Check out the main pros and cons of outsourcing to a 3PL company below.
3PL Advantages
The 3PL model has been growing in popularity across the world for a reason. It brings many benefits to a business, including:- Experts by your side: Running an e-commerce business doesnโt necessarily mean that logistics are your strong suit. If you contract a 3PL provider to do the job for you, you can rely on their experience and connections in the industry to ensure order fulfilment goes smoothly and that you get the best deals possible.ย
- Cost-efficiency: Working with a 3PL company can help you save a lot of money in the long run. First of all, you will save on warehousing and employee wages. Second, 3PL companies get better deals when working with freight companies due to the sheer volume of orders they process and last but not least, an experienced third-party logistics partner will be able to help you optimise your inventory management to make a better profitย
- Faster delivery: Most 3PL providers can offer express delivery options, including next-day and even same-day delivery, which is a great selling point for your customers. With faster services and an improved user experience, you are bound to get more return customers.ย
- Resolving unforeseen issues: Shipping can be delayed for many reasons and trying to find alternative solutions on short notice can be hard. A 3PL company does that for you as it is their responsibility to fulfil the order.ย
- Documentation handling: One of the most daunting things about fulfilment is documentation. With years of experience in the industry, a third-party logistics provider would be able to handle all of the paperwork for you, including the customs documentation required for international deliveries.
- Growth opportunities: With more money to spend, more free time and fewer responsibilities on your hands, you will have the opportunity to invest your energy into growing your business. In addition to that, if you want to expand into new locations, the 3PL model allows you to do that with a lot less risk involved as you wonโt have to worry about securing warehousing, staff and local distribution routes.ย
3PL Disadvantages
There are no perfect solutions, so before you choose to switch to the 3PL model, you should consider the following:- The initial cost can be quite high. 3PL services help you make cost savings over time. However, there are immediate costs that you will have to consider, including set-up fees upfront, minimum monthly send, as well as transportation, warehousing, shipping and handling costs.ย
- Quality control is harder. As all your inventory is stored and handled by the 3PL provider at their own warehousing facilities, implementing quality control directly is harder. If you have a quality issue, you will have to arrange a visit with the provider first before you can go and inspect the products in question.ย
- If something goes wrong, you are the one to blame. If there is an issue with the order and your customers are unhappy with the service for any reason, it will be your business reputation on the line as the 3PL provider acts as an intermediary and their name is not known to the customer. This is why it is very important to select the right provider.ย
How to choose the right 3PL company?
As we already pointed out, finding the right provider is the key to the success of any business that uses third-party logistics. You have to be able to trust your 3PL service provider to deliver consistently and on time while maintaining clear communication with you. To screen potential 3PL companies, you should consider the following:- Past experience: The main benefit of using a 3PL company is having peace of mind knowing your fulfilment is handled by experts. This is why itโs important to check what projects they have worked on previously.ย
- Location: Knowing where the 3PL warehouse is located is very important too. If you are targeting a specific area, you may want to look for a 3PL provider who has a depot there. This would make deliveries quicker.
- Cost: We already established that starting a 3PL partnership warrants a substantial upfront investment. However, it is important that the provider you choose is open about this and clarifies all costs at the start so you know exactly what to expect.ย
- Digital Tools: Chances are you already have an inventory management system in place. Itโs worth discussing with the provider how they plan to migrate the data and what type of access to the information you will have.
- Good communication: There is a lot of trust involved when it comes to outsourcing so itโs important to find a reliable 3PL company that is willing to communicate with you. Make sure you align your expectations with the provider before you commit to a contract.
- Reviews & Testimonials: Thereโs no better way to find out how a company impacts its clients than straight from the source, so reading reviews and testimonials by previous clients can give you a good idea of how reliable the provider is.ย ย
