What is 3PL: How to Select a Third-Party Logistics Partner

Illustration by Jennifer Tapias Derch

Growth may come with opportunity, but it also invariably comes with growing pains.

If you’re in the process of scaling your ecommerce business, you probably already know this to be true, particularly when it comes to logistics, shipping, and fulfillment. It’s difficult to focus on marketing, product development and relationship building when you’re devoting all your time to negotiating shipping contracts or putting out fires.

That’s why90% of Fortune 500 companiesturn to third-party logistics (3PL) providers to help. As the ecommerce market has grown exponentially, so too has the 3PL market, which is forecast toreach $1.75 trillion by 2026.

There’s a reason the services of 3PLs are in high demand. These shipping and fulfillment experts house your inventory in their warehouses, and pick, pack, and ship products to your customers.

If you’re ready to partner with a 3PL for the first time or considering multiple 3PL partners to diversify and mitigate risk, here’s what you need to know to find and select the right vendor.

Table of Contents

• What is a 3PL provider?
• How does a 3PL work?
• 3PL myths and misconceptions
• Why do companies choose to work with a 3PL provider?
• Benefits of 3PLs
• Disadvantages of 3PL
• What is a 3PL company, exactly?
• What are the services a 3PL provides?
• How to choose a 3PL provider
• How Shopify can help: The Shopify Fulfillment Network

What is a 3PL?

A 3PL (Third-Party Logistics) is a partner or service that helps ecommerce merchants manage theirsupply chain. Common 3PL services include warehouse and inventory management, order fulfillment, shipping coordination, retail distribution, exchanges, and returns.

Partnering with a 3PL ultimately allows a merchant to focus on other aspects of their business.

Instead of managing your own warehouses and doing distribution in-house, you can store your stock in a 3PL vendor’s warehouse, with the stock shipped directly from your manufacturers. When a customer places an order online, items are then automatically shipped from the 3PL’s warehouse. Because the process is simple and seamless with a 3PL, customers never think twice about the handoff between received orders and fulfillment. That gives ecommerce merchants the capacity to do what they do best: develop, market, and sell products.

For many successful ecommerce businesses, 3PLs have been—and will continue to be—the secret ingredient that have allowed them to weather the recentsupply chain crisis. Unfortunately, the acts of political instability, natural disasters, human resources shortages, and regulatory challenges that we’ve seen in the past two years aren’t an exception to the rule. Supply chain disruptions are happening with increasing severity and frequency, with experts reporting significant disruptionsnow occur every 3.7 years.

“Supply chains are not the sexiest part of retail, but it’s probably the most important part that companies need to invest in,”

Shaun Broughton, Managing Director of Asia Pacific for Shopify, said in Shopify’s2022 Future of Commerce report. In the same report, 37% of merchants indicated that they planned to hire or change 3PL fulfillment providers in the coming year.

How does a 3PL work?

While the 3PL fulfillment process can vary depending on the provider and services you’ve agreed on, the typical process looks like this:

1. The 3PL receives your inventory at its warehouse and organizes each SKU.
2. When an order is placed on your ecommerce site, it’s either manually forwarded to the 3PL or automatically pushed (if its software integrates with your online store).
3. A warehouse team member gets a picking list to collect the items that have been ordered.
4. The items are packed in boxes with the receipt and order details.
5. The 3PL prints the shipping label or uses one of its shipping carrier partners.
6. The shipping carrier collects the package from your 3PL’s distribution center and delivers it to your customer.
7. Tracking information is uploaded to the 3PL system and synced with your订单管理软件.

So, what’s the difference between afreight forwarder, 2PL, 3PL, and 4PL?

2PL:Couriers collect parcels from your warehouse and deliver them to an end customer.

3PL:Inventory is stored, picked, packed, and shipped by a third-party company.

4PL:Providers manage the fulfillment partners (3PLs) you’re working with. Their team negotiates the contract with a partner, resolves any issues, and communicates between your internal team and the distributor.

Freight brokers:Act as intermediaries between brands and drivers. Freight forwarders are different from 3PLs in that they’re specifically dedicated to matching up brands with drivers or carriers.

3PL myths and misconceptions

Plenty of myths and misconceptions exist about working with 3PLs. Here, we’ll break down three of the most common ones.

“When you hand things over to a 3PL, you lose control.”

It’s true that inventory stored in a 3PL’s warehouse won’t be immediately accessible to you, which may feel disconcerting at first.

But working with a 3PL actually allows you to regain control. When the pressure of shipping and fulfillment is taken off your plate and handed over to the experts, mistakes are less likely to occur. A good 3PL should also be able to provide reports and analytics, which lets you manage the process remotely and help you make better business decisions in the future.

“3PLs are only for enterprise-sized businesses.”

On the contrary. If you have plans to scale or grow your business, a 3PL might be for you. Don’t assume that the cost of third-party warehousing and distribution is out of your price range—as we explain below, it can actually reduce your overhead costs and free up capital.

“3PLs have too many hidden fees.”

It’s true that pricing for 3PLs can be complex, with additional fees that include inbound costs, storage costs, outbound costs, customs and duties, and even custom packaging.

But these fees aren’t hidden—they’re clearly laid out,provided you know the right questions to ask before signing a contract with a 3PL.

Why do companies choose to work with a 3PL provider?

If you’ve never worked with a 3PL before, it might sound like an expensive solution to an albeit annoying workflow. After all, picking, packing, and shipping orders from your warehouse or brick-and-mortar store can be a cheaper option than hiring third-party help.

However, it’s sensible to choose a 3PL before you’re overwhelmed by order growth. Not just a solution for enterprise-sized brands, 3PLs are designed for merchants of any size with intentions to scale. Suppose you have a flash sale or one of your products goes viral? It’s not always feasible (or cost effective) to handle that surge of orders in-house. Breaking fulfillment promises to customers can cause major damage to your brand, particularly in anera when 60% of global consumers expect same-, next-, or two-day delivery.

Three key questions will help you determine whether it’s time to enlist the services of a 3PL:

Are you fulfilling more than 10 to 20 orders per day?

If that’s where you’re at, calculate the costs of partnering with a 3PL to keep your profit margins strong. Outsourcing packing, picking, and shipping can save time on manual labor, especially if you’re partnering with a 3PL that uses automation.

Likewise, estimate the growth potential—opportunities you’re not currently able to pursue—by outsourcing fulfillment to a 3PL.

Are you running out of inventory storage space?

Merchants often forget to include storage costs in their fulfillment expense calculations. (This is surprising considering that21% of a company’s logistical costsare spent on inventory carrying.)

When deciding whether a 3PL is right for your retail business, compare your current warehouse expenses with estimates from 3PLs. Sometimes, bundling storage costs with outsourced fulfillment gives you better value for your money.

Can your existing infrastructure handle a surge in demand?

How much would a sustained spike in order volume (outside of one-offflash salesor marketing promotions) cost your business?

If you need to hire rapidly to increase in-house capacity or invest in automation yourself, it might be more cost effective to outsource fulfillment to a 3PL.

Watch: 3 Signs You Need a 3PL

Benefits of 3PLs

You’ll be outsourcing your logistics to shipping and fulfillment experts

最好做你做的事情让别人去做they do best. 3PLs are specialists in logistics. By allowing them to manage your shipping and fulfillment, you’ll have more time to invest in big-picture strategy.

That was what LA-based apparel brand CISE experienced when it engaged the services of the Shopify Fulfillment Network (SFN), Shopify’s own 3PL.

“我们有很多订单, we would say, ‘Processing time can vary between five to nine days,’ or ‘It'll be between 96 to 200 plus hours,’”says CISE founder Blake Van Putten.

"When we got onboarded with SFN, we had, like, 1,000 pre-orders backlogged. SFN pushed out the orders in literally a day and a half.”

Relying on SFN also gave Van Putten time to experiment with innovative concepts and ideas, like the construction of an entire mobile storefront housed in a 27-foot trailer. After entering and deciding what to buy, customers place their order on-site, which is then shipped to their doorstep by SFN.

You can test and launch in new domestic and international markets with ease

Expanding internationallyrequires aglobal fulfillment network, documentation, and accounting for customers and duties. If you want to try to sell your product overseas but aren’t prepared to navigate the legalities involved or invest in infrastructure abroad, working with a 3PL can be a good way to test the waters.

A 3PL is often the quickest way of spinning a shipping operation in a new experimental market."

—Stephen Jones, Senior Partnership Manager at Veeqo, an ecommerce fulfillment platform.

例如,如果你是一个美国商人和广域网t to test your products in the United Kingdom, it makes sense to store a small batch of inventory in the country using a 3PL. “This removes the complexity of learning about local real estate and labor laws before you know if the market is even worth it,” says Jones.

Outsourcing these responsibilities can also expedite delivery times, improve customer satisfaction, and reduce shipping costs—three huge wins bound to have positive impacts on your bottom line.

Free up capital that’s tied up in warehouse spaces

If you’re investing in your own warehouses and distribution centers, costs aren’t set to decrease any time soon. Warehousing rents are predicted to increase by 10% over the next 12 months and a shortfall of 140 million square footage of warehouse spaceexpected by 2024is bound to bump up the price of storage facilities.

In contrast, 3PLs have strongholds over their storage premises, and higher order values from their retail partners gives them grounds to keep their warehouse space. As soon as you let your own warehouse space go, you’ll have more capital to direct toward return-generating endeavors.

Working with a 3PL allows for distributed inventory, with the ability to scale up or down without being tied to a [warehouse] lease.”

—Kristina Lopienski, Director of Marketing Communications at ShipBob.

Reduce your overhead costs

Relying on a 3PL means you get the benefits of skilled warehouse staff, as well as warehouse automation technology, without investing cash into developing your own. Robotic machinery to pick and pack orders, for example, means human staff don’t need to be on-hand to fulfill orders. The machinery works 24/7, so retailers can benefit from later order cut-offs for immediate shipping. Ocado Retail even overhauled its entire warehouse to be completely automated.

The other area of potential cost savings is carrier rates. Since 3PLs are able to negotiate preferred shipping rates, the cost of shipping is typically lower. And those savings, in turn, can be passed on to consumers by offering them free shipping.

Insulate your business against global supply chain disruptions

With an existing network of fulfillment centers around the world and pre-negotiated carrier contracts, 3PLs may be less vulnerable to global shipping and fulfillment disruptions. While working with one may not eliminate shipping surcharges altogether, it will insulate you from them and diversify your risk, as 3PLs typically have relationships with multiple carriers.

Increasingly, 3PLs are also investing in their own delivery vehicles, which can support shorter distances and more frequent deliveries, and avoid clogs in the supply chain.

For example, Shopify merchant Manly Bands—which sells wedding rings for men—has started to mitigate the impact of delivery delays by working with 3PLs to fulfill orders.

“By doing this, we have found that we have more control over our shipping commitments,” says Eric Farlow, Manly Band’s Chief Operating Officer. This strategy has proven to be successful, with the brand’s customer satisfaction score holding steady at 97.9% throughout 2021.

Disadvantages of 3PL

There is an upfront investment

There can be significant upfront costs when setting up with a 3PL provider, like integrating their software with your ecommerce store, SKU upload, and account access. Costs will normally be broken into the following categories:

• Transportation costs:Shipping products from your factory to your warehouse.
• Receiving costs:Offloading products from your transportation provider to their warehouse.
• Warehousing fees:Usually a monthly fee based on the amount of space used and charged per pallet.
• Pick-and-pack fees:Picking units from shelves or bins and packing them for shipment and discounted for higher volumes.
• Shipping costs:Delivery of product to your end customer.
• Account set-up fees:Account creation and software integration.
• Minimums:Minimum monthly spend is generally required.

3PLs may have a different hours or workflow

With “fast” and “free” being the two principles dominating the shipping and fulfillment landscape, when there’s a backlog and you just want to get orders out the door, it can be tempting to head down to the warehouse and pack orders yourself. But if you’re working with a 3PL, that won’t be possible. 3PLs maintain their own hours of operation and workflow, which can have a flow-on effect to your business.

What is a 3PL company, exactly?

There are several types of 3PLs:

Full-service providers

Do you have several warehouses dotted all over the place? Selling cross-border has gotten much trickier to manage logistically. Plus, the supply chain crisis has made clear the importance of having real-time, multi-location inventory visibility.

Not only is knowing how much stock you have (and where) a key component of improving operational efficiency, so too is shipping inventory from the location closest to the customer, which cuts shipping costs. Full-service 3PLs help ecommerce brands become more efficient during and after crises.

Full logistics service providers, like theShopify Fulfillment Network, offer end-to-end solutions that get orders to your customers easily and quickly. With a vast network of strategically located fulfillment centers nationwide, full-service 3PLs like ours make sure you have the right merchandise at the right location so orders ship faster and cheaper.

Alongside faster and cheaper shipping, full-service 3PLs like the Shopify Fulfillment Network offer:

• Inventory intelligence.Shopify recommends where inventory should be stored to be close to customers.
• Control over fulfillment experience.Decide how fast orders are delivered and stand out with marketing inserts. Packaging is included with the pick rate and you can supply your own branded packaging.
• Easy integration.No technical integration required. Shopify will help set up the Shopify Fulfillment app for you. Most 3PLs offer extensive integrations and ongoing maintenance.
• Same-day fulfillment.Orders received by 4 p.m. ET are shipped out the same day.

World-class fulfillment that was once reserved for only the largest companies in the world is now accessible and affordable for every high-volume brand, thanks to SFN.

3PL warehouses

Warehouses that store, ship, and handle returns are the most common type of 3PL, with many offering super-fast two-day shipping options. And, if you’re expanding globally,international warehousescan help build a global supply chain. Knowing how to refine product fulfillment workflows is a skill that comes with experience—one that retailers can lend from 3PL warehouses.

When choosing a 3PL warehouse, determine how many distribution centers you’ll have access to. You’ll need a larger network of warehouses if you promise customers expedited delivery. Shipping speed hinges on warehouses being geographically close to your customers. You’ll also need toaccurately forecast inventory levelsto appropriately stock warehouses in your network.

It’s also important to find out the time at which your warehouse stops fulfilling the day’s orders. If orders are placed after the warehouse cut-off time of 3 p.m., for example, they won’t go out until the next day. This impacts how you market fulfillment and the delivery dates consumers expect. (Remember: just one later-than-expected delivery and you risk losing those customers.)

Transportation-based 3PLs

Transportation-based 3PLs shuttle goods between locations. For example, they might transport inventory between your factory and warehouse. They could also transfer stock between your store and a retail buyer.

There are three main types of transportation-based 3PLs:

• Traditional parcel transportation providerssuch as DHL, FedEx, UPS, and the USPS
• Same-day delivery by local courierslike Postmates and UberRush
• Transportation marketplaceslike Flexport, Freightos, and GrandJunction

When deciding on a 3PL parcel transportation provider, explain your origin and destination locations and the timeframes you expect for stock to move between.

Ask about the shipping methods they use, the service levels, and any pricing/discount information they’ll give once your inventory increases. If you transport freight globally, some include brokerage fees; others include import/export taxes and duties in their costs.

Financial- and information-based 3PLs

Thepandemiccaused many retailers to focus onunit economics. It’s a model that requires visibility into key warehouse processes like pick-to-pack to better understand and calculate the costs associated with each unit or item sold.

As we exit out of pandemic-related lockdowns, retailers must have the financial information associated with fulfillment at their fingertips. It’s the only way to make rapid and accurate decisions during crises and thereafter.

After you’ve scaled revenue to eight or nine figures, you might want to consider a financial- or information-based 3PL company. Consulting firms—likeChicago ConsultingandSt. Onge—provide industry-specific insight and can take the headache out of complex global supply-chain management. They also give internal controls on tasks like freight auditing, cost accounting, andinventory managementto ensure consistency.

What are the services a 3PL provides?

Here are the most important services to look for when engaging the services of a 3PL.

Warehouse and inventory management

A 3PL should provide warehousing for your inventory, as well as haveinventory management solutions and software to manage it.

Based on where most of your customers reside, it’s helpful to know where a 3PL’s warehouses are located. This can help you keep merchandise within shipping zones, allowing you to provide same-day or two-day shipping.

A good 3PL will also relocate your inventory based on where orders are coming from. SFN, for example, will ship goods closer to your buyers to ensure they’re always available in the closest warehouse possible.

Order management and fulfillment

A 3PL should have arobust order management system (OMS)to track stock levels across warehouses and to get the products into your customers’ hands, fast. This will be integrated with your own software, so that you’re able to maintain management of your shipping and fulfillment.

Shipping coordination

第三方物流处理建立了carriers or have their own fleetfor shipping and fulfilling orders.

Most are adept at fulfilling shipping promises (such as two-day shipping),which has been proven to drive conversions at check-out.

Order tracking

A 3PL will send order confirmation to customers, as well as confirmation of shipping and delivery.

Reverse logistics and returns

It’s not enough to simply ship orders out. A full-service 3PL will also manage yourreturn and exchange processes, as well as the customer service that goes along with that.

International logistics

Finally, if you’re scaling internationally, choose a 3PL with locations in multiple countries, which can help to reduce cross-border shipping and tax complexities.

How to choose a 3PL provider

Selecting a third-party logistics service is likely one of the biggest decisions you’ll make as you scale your ecommerce business. You’re putting trust in the provider you select to take care of your brand and deliver the customer experience you envision.

The right partner can make or break your company’s logistics, customer service, and repeat purchase rate. Trusting someone with sales, inventory, and other sensitive information is a significant risk.

Choosing the right partner is a balance between quantitative data and relationship building.

Here’s how to do it.

寻找什么样的3 pL

We asked Calli Grace, Merchant Success Lead at Shopify Fulfillment Network, what she would recommend when it comes to choosing a 3PL. Her top piece of advice? Don’t choose a 3PL based on where you are today, but rather where your business is going to be one or three years from now.

“Changing fulfillment providers can be strategically difficult and disruptive to your business, even when executed via the smoothest transition plan,” Calli says.

It's best to pick a long-term partner and to anchor yourself to the one to three things that elevated that partner amongst the rest. Commerce and fulfillment will evolve over time and by selecting a partner for the long term and establishing trust, you can benefit from their insight and suggestions into how to evolve your business along with the industry’s changing landscape.”

Likewise, choose a 3PL that is also looking for a long-term partnership, such as one that’s able to advise you on how to maximize sales, reduce costs and optimize your supply chain.

How to get the best out of a 3PL provider

1. Evaluate their logistics operations

The advantage of using a 3PL is you can lean into a partner’s existing setup to store, pack, pick, and ship orders. Evaluate how efficient that process is and whether they’re equipped to handle a rise in inventory as your own business scales.

Ask the following questions:

• How many warehouses do you operate?
• Do you have locations in my high-volume areas?
• Have you worked with companies in our industry? What vertical do you specialize in?
• How many orders do you ship each month (in the following categories: B2C, B2B, domestic, and international)?
• What is your maximum capacity?
• Has your capacity grown over time?
• Do you handlereverse logistics?
• How do you execute next-day orders?
• How do you handle unexpected spikes in order volume?

2. Ask about the costs

There are steep set-up fees when partnering with a new 3PL, but as time goes on, you’ll likely

save money on fewer overheads and labor costs. Calculate the potential savings by asking for a list of costs—and what that quote includes—before deciding on a partner.

• What are your hours of operations (including weekends and holidays)?
• How many shipments from your factory do you receive on a quarterly basis?
• Do you provide custom packing slips and gift messages or gift cards?

“Look out for the quoted price and understand that it often won’t include value add-ons like marketing inserts, gift wrapping, and special packaging,” says Charles Michael, Manager of Strategic Partnerships atStitch Labs.

If you feel like you’re getting too good a deal, you probably haven’t asked all the right questions.”

You might have better shipping rates than the warehouse you’re evaluating. If so, ensure your warehouse partner will accept them. Conversely, larger warehouse networks can often use their heft to negotiate deeper discounts than lone businesses.

3. Set reporting and communication expectations

When working with a new 3PL, it’s crucial that things switch over seamlessly. Monitor your customer support channels and social media for shipping-related complaints from customers. Also inquire about whether your 3PL options offer some form of reporting to help you keep track of things like timeliness of deliveries, order and delivery accuracy, and shipping-related damages.

Set expectations for that communication. How do they communicate about the following:

• New orders
• Shipping notices
• Returns
• Inventory counts
• Incoming purchase orders
• Receiving stock
• Adjustment notifications

4. Determine delivery service levels

Sweat the contract details before you commit to working with a new 3PL provider. Asking the following questions upfront prevents you from entering a contract with an untrustworthy logistics provider:

• How do they compensate for delays?
• Do they have an enforceable non-disclosure agreement?
• Do they have strong customer references?
• Do they have at least a two-year track record of financial stability, and are they willing to share financial statements with you?

Decide whether you prefer a refund or credit if shipments aren’t fulfilled on time. Be sure you know whether you’ll be credited for broken or lost items—understand the service-level guarantees offered to gauge your liabilities.

Also, think about whether you want packages fully insured while in storage and during delivery and return. Be precise when negotiating. For instance, you may only want to insure items up to $100 or beyond. Understand if what you’re getting is insurance or simply a carrier-included liability.

5. Check for integrations

Got your shortlist of 3PL providers? The final measure is to confirm that the 3PL integrates with your existing inventory management system, order management system,order processing software, and/or warehouse management solution.

Synchronizing systems ensure orders are automatically fulfilled and shipped while simultaneously updating inventory levels.

• How easy is your standalone platform to use?
• Do you integrate directly with your Shopify store through an API or an approved app?
• Do you have a standalone platform you can integrate with through an EDI or via FTP file transfers?

Some 3PLs integrate with Shopify directly to make changes on your behalf—like marking orders as fulfilled, processing refunds, or tracking stock. Your order management system becomes the single source of truth, regardless of whether you’re posting orders from your own warehouses or using a 3PL.

Looking for more advice on how to find the right 3PL partner?DownloadThe Third-Party Logistics Checklist,which includes 45 key questions to ask prospective partners, along with advice from experts in the field.

Top 3PL providers in key locations

US

• C.H. Robinson
• XPO Logistics
• UPS
• US Xpress
• Ceva Logistics

United Kingdom

• DHL International
• Kuehne + Nagel
• DB Schenker
• UPS

Canada

• A.P. Moller-Maersk
• Bollore Logistics
• C.H. Robinson Worldwide
• FedEx Corporation
• Kintetsu World Express
• Nippon Express
• Penske Logistics
• Purolator
• SCI Group
• UPS

Australia

• Invenco
• DB Schenker
• eStore Logistics
• Toll Group
• StarTrack
• PikPak

How Shopify can help: The Shopify Fulfillment Network

The Shopify Fulfillment Network can pick, pack and ship orders for you, so you can spend more time managing your business.

“Shopify Fulfillment Network was built with the needs of our merchants in mind and is completely integrated with your Shopify store,” says Calli.

The SFN will recommend distribution centers that are close to your customers so you can regionalize your inventory. As soon as an order is placed through your ecommerce site, it’ll ping the warehouse that’s closest to your end customer. The product gets picked, packed, and shipped—all without your hands-on involvement. All distribution centers also have their own “Chuck,” a collaborative robot that picks and packs orders. It reduces human error and improves speed and accuracy when fulfilling orders.

But it’s not just about error reduction—it’s also about cost savings. Calli explains that unlike other 3PLs—which often have complex pricing plans—SFN’s pricing is all inclusive. There’s just one fee for all your storage, fulfillment and returns, and you don’t pay for any storage on fees for items sold within six months.

For merchants likeThe Dad Hoodie, relying on SFN for shipping and fulfillment has made a big difference to its bottom line.

“Knowing that we have a premium partner that gets orders out of the warehouse quickly and at a cost we could not achieve elsewhere [means] we’re able to focus on growing our business,” says Taylor Llewellyn, founder of The Dad Hoodie. Since enlisting the services of SFN, The Dad Hoodie’s average shipping cost has been reduced by 40%.

“As a business owner, fulfillment is only something you think about when it isn’t working well, and luckily, I never have to think about it," says Taylor.

The Shopify Fulfillment Networkcan help high-volume businessesfulfill quickly and affordably.

Shopify’s third-party logistics partners

You can also use one of Shopify’s premium third-party logistics (3PL) partners with seamless integration into your Shopify store.These include:

• Shipbob
• Easyship
• ShipHero
• ShipperHQ
• Shippo
• ShipStation
• Veeqo

Partnering with a 3PL can change your business for the better

Whether you’re partnering with a 3PL for the first time or decreasing the reliance you already have on one, the process is tough. Ecommerce brands can’t control the destiny of each of their business partners. But what you can control is the due diligence you conduct before selecting a 3PL.

Be ultra-thorough in your appraisal of potential partners. The right third-party logistics companies can change your business for the better—not just by taking the headache out of storing and delivering orders, but in the speedy delivery times you can promise to customers.