The Growing Power of Third-Party Logistics

Some companies can take a product all the way from development to sale using only in-house resources, but many businesses opt for outside help.

Third-party logistics (3PL)

companies allow companies to outsource different parts of the supply chain, and the market for 3PL is experiencing explosive growth.
The global market for 3PL is expected to reach a value of 1.26 trillion by 2026, according to an Orbis Research report. Already, 90 percent of Fortune 500 companies are using one or more 3PL services, according to a Supply Chain Dive report. So, what is 3PL, and why is it growing so quickly?
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Companies can use 3PL to outsource their distribution and fulfillment, according to Shopify. 3PL is sometimes thought of as simply warehousing, but these types of companies often provide a wide variety of services. 3PL companies can also offer product development, material sourcing, manufacturing scheduling, product inspection, packaging, and more. Companies have the ability to tailor 3PL services to their needs.

What companies provide 3PL services? The list of top players includes names like DHL Supply Chain North America, XPO Logistics, Ryder Supply Chain Solutions, and FedEx Supply Chain, according to Logistics Management. But, the next big name in 3PL services could be Amazon – depending on who you ask.

Amazon has a network of hundreds of warehouse and distribution facilities, sorting hubs, and fulfillment centers. That network not only serves to store and ship its own products, but it also serves a large number of third-party sellers, according to Transport Topics.

New companies are also rising to offer their services in the in-demand 3PL space. For example, the Seattle startup Flexe is styling itself as the “Airbnb of warehousing,” according to GeekWire. Flexe does not own any warehouses. Instead, it helps companies find space in existing warehouses, according to Curbed. The company operates in more than 1,000 warehouses across the country and has a client list with names big (think Walmart and Casper) and small (think new startups), according to the Curbed report. Other startups are competing with Flex to provide on-demand warehousing, according to Forbes.

Many companies opt for 3PL services because it is less expensive than doing it in-house. But, how much does this service actually cost? It all depends on what you want the third-party service to do for your company. A fulfillment price structure may include fees for stock receiving, storage, packaging, and shipping, according to FitSmallBusiness. Customers also have the option to pay for other services, such as specialty kitting. Keep in mind, some 3PL companies require a warehousing commitment for a set period of time, according to Kanban Logistics. Other companies have per-project pricing.

When does it make sense to use 3PL services? Volume is an important metric to consider when answering this question. For example, Shopify suggests considering a 3PL service if your company is fulfilling more than 10 to 20 orders per day. If 3PL makes sense for your business, there are a wide variety of companies and pricing plans available to research and select.

When selecting a 3PL service, keep in mind the flexibility of the warehouse space. For example, industrial curtain walls can serve as warehouse dividers, allowing the organization and separation of goods. These curtains (like the ones offered by AmCraft) can be removed and rearranged to evolve along with the needs of the facility’s clients.