When you order something online, what do you spend your time thinking about before it arrives? Most likely, how those new curtains will look in your new house. Or opening up that shiny new tablet. Even questioning whether or not a month’s supply of Pocky snacks were enough.
You probably aren’t thinking about third-party logistics. The work of third-party logistics networks goes on behind the scenes, so many of us take it for granted.
What is Third-Party Logistics (3PL)?
“We’ve trained customers to expect that when they hit the order button, their stuff will magically appear at their door,” said Chad Biggins, founder and CEO of New York-based 3PL startup TransGlacier. “But there’s a lot of work that allows things to flow smoothly.”
For our purchases to arrive on time, the processes of shipment and delivery need to work like a well oiled machine. Here’s how third-party logistics companies are keeping the global economy running, and where the industry goes from here.
What Are Third-Party Logistics
Between placing an order online and opening the package on your kitchen counter, there is an elaborate system of truckers, warehouse specialists and shipping companies that work to get your items from point A to point B. Some companies manage their shipment operations from their own warehouses, but many companies outsource theirs to third-party logistics (3PL) companies that focus solely on fulfilling product shipments and orders.
“A 3PL company is a warehouse that receives and stores products, and then ships them to the end consumer, either leaving it on the doorstep of someone’s home or sending it to a retailer for further distribution,” Biggins said.
It’s estimated that around 90 percent of Fortune 500 companies enlist the services of third-party logistics companies, according to research from consulting company Armstrong & Associates. The reason for this is simple: it’s easier, quicker and cheaper.
“A 3PL company is a warehouse that receives and stores products, and then ships them to the end consumer, either leaving it on the doorstep of someone’s home or sending it to a retailer for further distribution.”
“Partnering with a 3PL means you don’t have to be an expert of supply chains,” Biggins said. “You can aggregate your costs, and because a 3PL usually ships for multiple clients, they can give you discounts on packaging and postage.”
Third-party logistics vendors understand that fulfilling and shipping orders is its own full time job. If you’re a business owner, trying to fulfill orders on your own can eat away at the time you could be spending making your products stronger and growing your business. Outsourcing your order fulfillment operations gives companies more time to focus on developing other parts of their business. It also gives them more peace of mind, said Mendel Mangel, CEO and founder of Cincinnati-based logistics company Frankly Fulfillment.
“One of our customers had an influencer post about their product without them knowing, and as a result they did over a thousand orders in a weekend,” he said. “But we were able to fulfill all those orders by Monday afternoon. We act as your warehouse and shipping team, so that you don’t have to worry about it.”
How 3PL Has Evolved
The beginning of the 3PL industry can be traced back to the Motor Carrier Act of 1980, which deregulated the trucking industry and paved the way for independent logistics companies to expand their operations. But Biggins said that the true catalyst for third-party logistics came with the evolution of the internet.
“What originally got me interested in the industry was the power of the internet, and watching how fast a product can scale online,” he said.
The internet gave companies the option to open e-commerce platforms and sell their products to a global customer base. The technology boom of the early 2000s also gave logistics leaders new supply chain visibility tools like order tracking and warehouse organization software to expand the scope of their operations.
The next big leap in logistics, Biggins said, happened because of the pandemic. With companies like Target and Amazon promising same-day delivery options, 3PL companies had to upgrade their operations quickly in order to compete and satisfy the needs of a customer base stuck at home.
“So many restaurants and stores were shut down, so a lot of those people went and worked in logistics,” Biggings said. “That’s how we were able to scale up so quickly.”
While the lockdowns made some logistics providers rich, they also exposed a lot of weak links in the supply chain. The spike in online purchases meant order fulfillment centers had to scramble to meet that demand, leading to unprecedented package delivery delays throughout the early stages of the pandemic.
“The pandemic really stretched the industry thin and pushed its capacity and volume further than it had ever done before,” said Biggins. “3PLs had to push products out faster, and that stretching broke a lot of relationships and trust.”
Setbacks like these haven’t hindered the growth of the 3PL industry, which is valued at over $950 billion globally. Now that customers have gotten a taste for next and same-day delivery, third-party logistics providers will scramble to get products to doorsteps as fast as possible. But Biggins warns that the push for instantaneous delivery is unrealistic, and comes with a price.
“When you push the industry too hard, quality goes down, error rates go up, and so does turnover,” he said. “All this stuff is not limitless.”
The Future of Third-Party Logistics
There’s a lot more to third-party logistics than packing boxes into trucks. Managing order invoices, tracking packages and keeping in touch with customers is a complicated dance, and fulfilling orders in a modern economy requires modern tech tools.
“The basic tech stack includes a warehouse management system (WMS) that can plug into a shopping cart software,” said Mangel. “We use Shopify, WooCommerce, and other kinds of shopping cart tools to store and track inventory.”
“Most of the platforms have some sort of open API, so warehouses can also add their own layers of business intelligence or data analytics tools based on their customers’ needs,” Biggins said.
“People forget that there’s always someone that has to load and unload trucks and airplanes along the way.”
But the path of logistics technology doesn’t end with order tracking software. The global demand for quick delivery is changing by the minute, and 3PL leaders will need to brainstorm more creative ways to get packages delivered fast. By Mangel’s prediction, this means the future of logistics technology lies with automation.
“It used to be that only large companies could get involved in the robotics and automation space,” he said. “But we’re starting to see a lot of players coming into the robotics space to help smaller 3PLs take advantage of that technology in some way.”
Automation and robotics technology can speed up operations on the warehouse floor, making it faster and easier to move products from trucks to shelves. But while automation can speed up logistics operations, Mangel said that 3PL is still only human.
“People forget that there’s always someone that has to load and unload trucks and airplanes along the way,” Mangel said. “There are so many human beings involved, and everyone has to be there for things to work properly. I feel like that can really put things into perspective.”