3PL or Third Party Logistics is a method of operation in which one or more logistics functions are outsourced to a third party. When importing goods from different countries around the world, it is worth knowing more about terms related to logistics or forwarding. In the article below, we will explain more precisely the concept of 3PL.
What is 3PL?
It is a logistics based on the use of an external company. Large companies often outsource some operations to third parties if this is not their main area of service.
3PL (Third Party Logistics) means that three parties take part in the order.
Alternatively, the name LPL (Logistics Service Provider) is used for the term 3PL, meaning simply a logistic operator.
This method is slowly evolving in 4PL. New terms that have also appeared in the logistics industry are 5PL and 7PL.
History of Third Party Logistics
In the 1980s, the usefulness of the IT sector grew considerably. It has brought new opportunities for enterprises that use lean management in their structures (the concept of business management), which was developed based on the principles and tools of the Toyota Production System.
What functions can be transferred?
In this method of operation, typical functions that can be transferred are:
- Customs and cargo consolidation
- Contract storage
- Fulfilling orders
- Transport management
Use of 3PL
3PL is usually used by:
- Enterprises with a vast and complex distribution network
- Enterprises in which logistics is not the main service
- New production groups (at the beginning)
- Companies which had been taken over (during the integration of takeovers)
Advantages and disadvantages
Like all methods, this one also has its advantages and disadvantages.
As for the advantages, it includes:
- the opportunity to focus on other operations of the company than those commissioned to a third party;
- lower management costs and improved price competitiveness;
- release of resources (no need to invest in a given logistics structure);
- increasing the quality of the service provided by using the economies of scale and experience effect.
The disadvantages are as follows:
- less control over the operation performed by an external company;
- less (or lack of) contact with the client;
- the possibility of withdrawal of a third company;
- the risk of a difference in perception of the level of implementation of the ordered service between the parent company and a third party.
The 3PL method can be used by an enterprise whose main area of activity is not logistics. However, the costs of logistics services must be large enough to make it profitable to hire a third party to perform a specific task/process.
What is the difference between the method we are discussing from 1PL, 2PL, or 4PL?
1PL – it is the shipper and the recipient of the transported shipment
2PL – transport service providers without intermediaries (e.g., companies such as Maersk, MSC, CMA CGM)
3PL – companies that provide services to clients that are integrated or connected in a specific system (e.g., Kuehne + Nagel, DB Schenker, UPS, DHL)
4PL – consulting firm (e.g., Deloitte)
In the first case, the shipper and the recipient organize the entire process themselves (they can use Incoterms). In the second case, the recipient and the shipper use the help of an external company, where they committed the service to the company that is the direct contractor of the contract. In the third case, the logistics of goods is integrated, and the entire process of providing services is based on the use of subcontractors.
When deciding to import goods, it is worth getting acquainted with the offers of companies and choosing the one that suits us best.