Guide to Third Party Logistics: What is 3PL Warehousing?

Aug 1, 2022

Effective and efficient warehouse and fulfilment operations are integral to the success of all businesses. As your business grows, warehouse logistics can become expensive and challenging to manage on your own, particularly when other areas of your business — such as finances and marketing — require a lot of attention. 

Fortunately, you don’t have to take on the load yourself. This is where third party logistics services come in. 3PL warehousing allows businesses to outsource their warehouse and fufilment tasks so that everything from receiving inventory to shipping items out is taken care of. 

So, what is 3PL warehousing? 

What is 3PL Warehousing?

Simply put, a 3PL warehousing company is a short-term for third-party logistics provider that handles your warehouse and fulfilment needs.  

If you need to store and ship items, a 3PL warehousing company can do that for you.

3PL businesses have wide-ranging expertise that make business transactions flow easier between the company and its consumer. 

A practical, cost-efficient, and hassle-free freight and courier service, 3PL warehousing is a popular choice among businesses. 

If you’re a business owner, 3PL is a great process to scale up your business by letting others handle the logistics while you focus on other important, pertinent details of your trade.

How Does 3PL Work?

3PL businesses cover a wide range of logistical and organisational tasks. 

Essentially, you run your business while your 3PL provider takes care of warehousing and fulfilment. 

They will oversee and manage all things related to tools, infrastructure and warehousing, transportation, inventory management, customs brokerage, freight audit, payment, shipment tracking, and return management. 

Benefits of 3PL Warehousing

As mentioned, 3PL warehouses can store and manage your items before shipment. They are capable of storing various goods and cargo ranging from massive and bulky to small and delicate items. 

They have trained staff, safety, and emergency protocols, and well-equipped, guarded spaces that are designed to ensure protection and retain the quality of the stored items. 

Thus, business owners who don’t have enough staff or space to store their products can arrange for a 3PL warehousing business to provide these features. 

3PL warehousing companies also deliver customised scale solutions to meet their customer’s unique needs. 

How Much Does 3PL Cost?

As a business owner, it’s crucial to weigh up your options when you’re choosing your 3PL service. There are a number of variables that a 3PL company takes into account when determining costs. 

The main elements that factor into 3PL pricing are:

  • Onboarding Costs – Some 3PL companies will charge you a fee for onboarding. This charge will cover everything required to integrate your business with the fulfilment operations. It also covers connecting your online shopping cart to the 3PL warehouse. It may also cover setting up accounts and access, and updating systems with SKUs. 
  • Inventory Receiving – The 3PL company may charge to receive and verify orders you send to them. They may apply a flat-rate-per-shipment charge, or they may charge by the carton. Regardless, these charges are included in the overall order fulfillment cost. 
  • Inventory Storage – Most 3PL companies charge for the use of their storage space. Factors they consider include the size and the nature of storage, whether they will use a special insulated box or storage bin, and any other materials that will be used (such as pallets to transport the goods to and from their warehouse).  
  • Picking and Packing – Some 3PL companies charge based on the number of items to be picked and packed. Others may put it in the overall charge fee. Even with advanced technology, a lot of these companies still rely on their workers to handle the picking and packing of orders and their payment is included in the cost charged to you.
  • Kitting – Kitting costs will be applied when an order needs to be assembled into a set or kit. So, if your businesses offers a special deal that requires consolidated multiple SKUs, your 3PL warehouse will charge you extra to do so. 
  • Shipping – The overall order fulfilment payment is considerably less than if you were managing it on your own because 3PL companies handle shipping goods in volume orders. This translates to volume discounts that are given to merchant partners. They will also pass some fees to the customer outside of their arrangement with the said partners. 
  • Additional Costs – Some 3PL companies charged additional fees for services such as custom packaging, returns handling, heavy or bulky items, item assemblance, special storage needs, and batch fulfillments. 

While each 3PL service will charge differently, let’s take a look at an example of how your 3PL charges may come together. 

  • Onboarding – One-off cost that will differ depending on the size of your business and the 3PL services required. Generally, the charge will fall between $100 for very small businesses, $500 for small businesses, and $1000 or more for complex businesses. 
  • Inventory Receiving – Flat rate charge of $25 for the first two hours. 
  • Inventory Storage $50 per pallet per month, $10 per shelf per month, and $5 per bin per month.  
  • Pick and Pack Order – Included in total cost, free for the first 4 picks. $0.25 for every pick thereafter. 
  • Kitting – When required, beginning at $0.40 per unit per kit. 
  • Shipping – This charge will differ depending on the provider used, the pick up and drop off location, the weight of the package, and the shipment method. 

What’s the Difference Between 3PL and 4PL?

Now that we know what 3PL warehousing is, we can unpack what 4PL warehousing is and compare the two methods.

4PL companies are also known as Lead Logistics Providers. They are essentially logistics companies that take on the same role as a 3PL company, but with more responsibility and accountability. 

In other words, 4PL companies provide logistics management services just like 3PL companies, but they also function at higher and lower points in the supply chain (overseeing freight forwarders and covering last-mile logistics). 

4PL companies actually manage several different 3PLs. So, your 4PL company will manage your relationships with 3PL companies and provide you with additional assistance in transport, inventory management, shipments, and technologies. 

They’re basically a middleman that takes care of the relationship with your 3PL and all your operational needs. 

3PL companies, on the other hand, only manage the warehousing and fulfilment processes. 

How Does 4PL Work?

Your 4PL provider will coordinate the transportation of your goods, and send them to a designated 3PL warehouse.

Once the goods have arrived, the 3PL provider will take care of fulfilment, inventory, packing, and shipping.

In the meantime, your 4PL provider will take care of inventory management, using technologies that centralise tracking. 

Lastly, the 4PL provider will take care of last-mile delivery. This essentially means they’ll manage the relationship between the 3PL warehouse and the carriers that pick up the orders and ship them to your customers. 

3PL vs. 4PL: The Pros and Cons

The pros of 4PL is that your 4PL company can add warehouses to your network quickly. This means as a business owner, you can expand your distribution network efficiently. 

4PL businesses also manage your entire supply chain and act as a single point of contact for all of your operational support and communication needs. 

This means that your logistics are streamlined; you won’t have to worry about managing relationships with multiple vendors or finding ways to optimise your supply chain. 

However, there are also several downsides to opting for 4PL instead of 3PL warehousing.

As mentioned, 4PL businesses act as a middleman. While this may work for some business owners, it can also cause communication issues. 

When a 4PL is your main point of contact, all of your communication is filtered through from the 4PL to the different 3PLs it manages. This can mean delays in resolving issues, which can be frustrating for business owners. When you opt to work with a 3PL company on its own instead, you interact with them directly.

As we know, 4PL companies manage various 3PL companies. While this can expand your distribution network, it also presents challenges, as each 3PL sets its own standards and processes. They operate independently and use separate systems. 

This can cause inconsistencies in fulfilment which can present challenges. 

3PL vs. 4PL: Which is Right for You?

If your business is just starting out, it’s recommended that you fulfil your orders in-house. This is the cheapest and most efficient option for very small businesses. 

However, keep in mind that this fulfilment model is not scalable and will become more time consuming as your business grows. 

When your business begins to experience rapid growth, go with a 3PL warehousing system. Outsourcing your operational and fulfilment needs will help you scale up your business efficiently and effectively. 

You’ll be a bit more hands-on than you would be with a 4PL arrangement, but this can be useful to help you working out how your business will best operate logistically. 

If your business is at an enterprise level, we recommend switching to a 4PL management system. This will take you out of the weeds of managing your supply chain, as your 4PL provider will take care of every point at your supply chain. 

However, this does separate you from your supply chain, which means less control for you. Many enterprise businesses continue to use 3PL providers to maintain connection to their supply chain — this also works well. 

3PL: Hassle-Free Warehousing and Fulfilment

We now know that 3PL warehousing is a logistics provider that takes care of your warehousing and fulfilment operations. 

Your 3PL provider will take care of receiving your goods, storing them, picking and packing them, kitting them, and shipping them to your customers. A 3PL provider saves you time, money, and resources by eliminating the need for an in-house warehousing system. 

Simply put, 3PL warehousing is a short-term for third-party logistics provider that handles your warehouse and fulfilment needs. 3Pl warehousing is a great option for businesses of all sizes, but particularly for small and enterprise-level businesses.

For businesses looking for a hands-off approach to the supply chain, 4PL providers are for you. A 4PL provider will manage all elements of the supply chain from freight forwarders to last-mile logistics. They’ll also act as a middleman between your business and the 3PL warehouses you use. 

Wondering which approach is best for your business? Get in touch with us and we’ll work out the best solution for you. 

At Couriers & Freight, we have access to more than 1 million square metres of warehouse space and state of the art fulfilment facilities. You can quote, book, and manage your warehousing and fulfilment with us today.

robert lynch headshot

Robert Lynch

Founder of Australia’s largest outside hire company Couriers & Freight, Robert Lynch is a seasoned business leader in the shipping industry with over 20 years of experience. His expertise spans from outside hire, taxi truck, and last-mile services to freight management, freight forwarding and warehousing. 

Robert has also incorporated technology into his business through custom software to enhance growth and efficiency. Robert is a valuable resource for business owners looking to improve their logistics operations.

Connect with Robert Lynch on LinkedIn.

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