Third Party-Logistics (3PL)

A company which provides logistics services to other companies for some or all of their logistics needs. It typically includes warehousing and transportation services. Most 3PL’s also have freight forwarding licenses.

Here is an example of how 3PL arrangements operate: A book publisher hires writers, editors and graphic designers to produce publications, but it may not want to handle the consumer ordering process or transportation of book shipments. Instead, the book publisher uses a fulfillment center to process its online orders and hires a trucking carrier to haul its freight. The fulfillment center and carrier both act as 3PL providers. It’s possible for a single 3PL provider to fulfill and ship book orders, too.

By contracting with a 3PL provider, the book company can use supply and distribution services only when needed, thus controlling costs more effectively while focusing on its core competency of producing books.

Aspects of 3PLs probably date back hundreds, if not thousands, of years. The Council of Supply Chain Management Professionals traces the actual 3PL abbreviation to four decades ago. “The term 3PL was first used in the early 1970s to identify intermodal marketing companies … in transportation contracts,” the council wrote in a glossary. “Up to that point, contracts for transportation had featured only two parties, the shipper and the carrier.”

The Motor Carrier Act of 1980 deregulated the trucking industry, which reduced trucking rates and also increased the amount of competition, all of which fed into 3PL concepts, so consumers started to use goods transportation.

The term 3PL got bandied about more by consultants and during conferences in the 1990s, likely tied to evolving technology, including the rise of the internet.

Later, the Consumer Product Safety Improvement Act of 2008 legally defined 3PL: “The term third-party logistics provider means a person who solely receives, holds or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.”

According to a frequently cited 2017 report from Armstrong & Associates, a supply chain consultancy, 90% of domestic Fortune 500 companies rely on 3PL providers to handle logistics, compared to the 46% Armstrong reported in 2001. The primary benefit of using a 3PL service to handle logistics, such as packaging, warehousing, fulfillment and distribution, is cost savings — for example, not having to maintain a warehouse or the staff to monitor supply chain operations.

A 3PL service likely offers better performance on efforts such as shipping while also enjoying an easier ability to scale its operations. If the publishing company in the example above suddenly needs to ship more copies of a popular title, a fulfillment center will have an easier time meeting that demand than if the publisher itself had to ship additional copies of the book.