First, What are Third Party Logistics Services and the Definition of 3PL?
To many, the definition of third party logistics services or the definition of 3PL, is rather fuzzy and can be ambiguous as there are many definitions, depending on who you ask. Some say “all or a significant part”, while others say “at least one part.”
However, in our opinion, the best explanation of third party logistics services is probably a combination of those two notions, as third party logistics providers are businesses that provide one or many of the following third party logistics services:
- Transportation or Freight Management (including technology, freight accounting, and services around claims) – Cerasis would fit in these types of services.
- Public/Contract Warehousing
- Distribution Management
- Freight Consolidation
Further down in this post, we will then break out the various types of services in a more categorical approach.
Now for a more academic definition. According to the CSCMP Glossary, they define third party logistics services and 3PLs as:
Outsourcing all or much of a company’s logistics operations to a specialized company. The term “3PL” was first used in the early 1970s to identify intermodal marketing companies (IMCs) in transportation contracts. Up to that point, contracts for transportation had featured only two parties, the shipper and the carrier. When IMCs entered the picture—as intermediaries that accepted shipments from the shippers and tendered them to the rail carriers—they became the third party to the contract, the 3PL. Definition has broadened to the point where these days, every company that offers some kind of logistics service for hire calls itself a 3PL.
Preferably, these services are integrated, or “bundled,” together by the provider. Services they provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. In 2008 legislation passed declaring that the legal definition of a 3PL is “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.”
Levels of Outsourcing in Third Party Logistics Services
Not all third party logistics services are created equal when it comes down to the relationship in the way you as a shipper will outsource to them. So, after you understand what a 3PL is and the types of third party logistics services, the following are the different types of levels of outsourcing you can see:
- Transactional Outsourcing: Based on transactions, with no long term contracts and no bonding between the 3PL and the outsourcing company.
- Tactical Outsourcing: Outsourcing on a long term basis with negotiated contacts and integrated IT systems to facilitate free information flow and create supply chain visibility.
- Strategic Outsourcing: Based on long-term relationships with successful outcomes, 3PL companies become partners in supply chain management and establish transactional transparency.
At Rapidutter, when our clients outsource to us, we have both a tactical (process elimination and automation) as well as a strategic relationship. This means, that some third party logistics services can provide the former two levels of outsourcing stated above. However, in the transactional side, this is usually focused on cost, and in our opinion, for true long term savings, the former two are the focus, and not the first. If you are an ebayer, or making a one time shipment, transacational third party logistics services are for you. If you have a supply chain and make regular shipments, look at the tactical and strategic outsourcing third party logistics services providers.