In a world where margins are squeezed, understanding your 3PL costs can be the difference between success and failure. The cost of third-party logistics is one area that many businesses underestimate. This post will cover what you need to know about 3PL costs so that you don’t make any costly mistakes.
Why use 3PL services?
There are numerous reasons that make retaining the services of a seasoned and professional 3PL logistics company a worthwhile investment for any business owner. Here are some of those reasons:
- Handling the inventory, warehousing, and shipping needs of your goods allows you to focus on what it is that makes your product unique in today’s marketplace.
- A third party logistics provider has experience handling all manner of products, from small packages to an oversized pallet or container. They can also help with international shipments, which will save money through lower tariffs and customs fees, as well as simplify the process by having one point of contact at border crossings.
- A company specializing in the shipping process is more efficient and will not overload your warehouse with excess inventory. They can also take on warehousing, picking, packing, and shipping, so you reduce the time it takes to get a product from factory to customer, which saves 3PL costs.
It’s easy for business owners to believe they have all of these skills when needed, but really, this type of work needs special expertise, which is why it beneficial for entrepreneurs to partner with a 3PL specialist like Invenco.
What are 3PL costs?
3PL refers to third party logistics, which means that your business outsources the shipment of its goods to a company that specializes in moving freight. These companies are paid per package and often charge based on weight or volume instead of distance traveled.
The cost for shipping includes many different things. Here are some additional expenses you may need to know about:
- Transportation fees (the price charged by trucking firms)
- Tariffs/duties (charges imposed upon entering foreign countries)
- Fuel surcharge (an unexpected expense when fuel prices fluctuate)
- Freight insurance (to protect against loss or damage during transit)
- Custom broker services are required if customs clearance is needed at the destination port.
What’s not included in the 3PL costs? The cost for shipping does NOT include:
- Storage cost (periods when the goods are being held at a warehouse)
- Insurance coverage on storage (insurance to cover damage or loss of goods while they’re stored)
- Customs clearance charges, which are necessary if importing into foreign countries. These can be significant and vary by country.
- Temporary facilities that must be rented before moving the freight from one location to another; these may also have rental rates based on volume/weight instead of distance traveled.
- Labor costs incurred by your company during shipment including labor needed inside warehouses and any time spent repacking items after delivery has been completed.
Types of available 3PLs
Before you proceed to tap third party logistics companies and incur 3PL costs, it’s imperative to understand the various types of services that are provided. Depending on your needs, one type may be more suitable than the others:
Full-service providers manage everything from picking up and delivering freight to processing customs clearance charges.
These firms will move shipments between designated points with no other operations handling or labor costs incurred by your company during shipment (customs clearance/temporary facilities rental). These could also be called “van operators.”
Third-Party Logistics Management
Third-party logistics management entails a firm managing inventory at your facility for delivery to customers without any additional labor required at either endpoint of transport. This is usually in conjunction with an online order fulfillment system like Shopify.
Third-Party Logistics Provider
These companies manage the entire 3PL supply chain for your company, including inventory, order fulfillment, warehousing, and distribution to customers. They can also handle any necessary customs clearance charges and temporary facilities rental at both ends of transport.
The type you should opt for depends on the size of the business, the complexity of operations & products being shipped, among other factors.
Third-party Logistics Distributor
Third-party logistics distributors operate in the same manner as 3PL providers but work with wholesale companies rather than retail customers; they provide warehousing, order fulfillment, customer service, and tracking capabilities without handling the products.
How can you cut on 3PL costs?
Any business is out to turn a profit and reducing 3PL costs is the best way to go about this.
Here are some ways you can cut on your third-party logistics provider costs:
- Focusing on the type of product. If you have a lot of products with several variants, it would be easier for you to outsource and save money.
- Negotiating with established providers. These companies typically have much lower rates than newcomers to the market.
- Using a company that has extensive knowledge in terms of pricing, services offered, and other factors so they can come up with the best option for your business needs.
- Shop around. This may require a little work but could result in considerable savings.
At Invenco, we believe every business is unique, and we will work with you to find the best solution. If you are an entrepreneur who owns a business that requires third party logistics services, give us a call to ensure every single product is delivered promptly to your customer’s hands.