Third-party logistics

A third-party logistics provider (abbreviated 3PL, or sometimes TPL) is a firm that provides a one stop shop service to its customers of outsourced (or "third party") logistics services for part, or all of their supply chain management functions.

Third party logistics providers typically specialize in integrated operation, warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials.

Definition

To put forward some standard definitions, we would adopt the definition of 3PL found in the Council of Supply Chain Management Professionals’ glossary, which reads as follows:

"A firm [that] provides multiple logistics services for use by customers. Preferably, these services are integrated, or "bundled" together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding."

Types of 3PL

Third-party logistics providers are:

• freight forwarders
• courier companies
• other companies integrating & offering subcontracted logistics and transportation services

Hertz and Alfredsson (2003) describe four categories of 3PL providers:

• Standard 3PL provider: this is the most basic form of a 3PL provider. They would perform activities such as, pick and pack, warehousing, and distribution (business) – the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity.
• Service developer: this type of 3PL provider will offer their customers advanced value-added services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks.
• The customer adapter: this type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the company’s logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small.
• The customer developer: this is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.

Non Asset-based Logistics Providers

Advancements in technology and the associated increases in supply chain visibility and inter-company communications have given rise to a relatively new model for third-party logistics operations – the “non-asset based logistics provider.” Non-asset based providers perform functions such as consultation on packaging and transportation, freight quoting, financial settlement, auditing, tracking, customer service and issue resolution. However, they don’t employ any truck drivers or warehouse personnel, and they don’t own any physical freight distribution assets of their own – no trucks, no storage trailers, no pallets, and no warehousing. A non-assets based provider consists of a team of domain experts with accumulated freight industry expertise and information technology assets. They fill a role similar to freight agents or brokers, but maintain a significantly greater degree of “hands on” involvement in the transportation of products.

To be useful, this type of provider must show its customers a benefit in financial and operational terms by leveraging exceptional expertise and ability in the areas of operations, negotiations, and customer service in a way that complements its customers' preexisting physical assets.

On-Demand Transportation

On-Demand Transportation is a relatively new term coined by 3PL providers to describe their brokerage, ad-hoc, and "flyer" service offerings.

On-Demand Transportation has become a mandatory capability for today's successful 3PL providers in offering client specific solutions to supply chain needs.

These shipments do not usually move under the "lowest rate wins" scenario and can be very profitable to the 3PL that wins the business. The cost quoted to customers for On-Demand services are based on specific circumstances and availability and can differ greatly from normal "published" rates.

On-Demand Transportation is a niche that continues to grow and evolve within the 3PL industry.

Specific modes of transport which may be subject to the on-demand model include (but are not limited to) the following:

• FTL, or Full Truck Load
• Hotshot (direct, exclusive courier)
• Next Flight Out, sometimes also referred to as Best Flight Out (commercial airline shipping)
• International Expedited

Terminology

In the "PL" terminology, it is important to differenciate the 3PL from the:

• 1PL, which are the shipper or the consignee,
• 2PL, which are actual carriers,
• 4PL, which are consulting firms such as Rollins, Deloitte, SCMO (company), BMT Limited, or Accenture.

Overlapping

3PL can also be 2PL at the same time in the following cases:

• when a shipping line owns a freight forwarder,
• when an airline owns a general sales agent (GSA),
• when a freight forwarder owns trucks or a warehouse,
• when a courier company owns planes.

See also

• Courier
• Freight forwarder
• 1PL, First-party logistics provider
• 2PL, Second-party logistics provider
• 4PL, Fourth-party logistics provider

• Freight
• Shipping
• Logistics
• Transportation
• Supply chain management