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How to evaluate if a 3PL has the best shipping options for you

Jul 12, 2022

12.7.2022

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9:00

PT

Let’s state the obvious: shipping is complicated. From packaging materials to dimensional weight, shipping zones to returns, understanding the logistics and cost of shipping your orders is a monumental task, which is probably why you’re looking to outsource fulfillment

If you’ve identified a problem or challenge in your shipping process, looking to outsource is a great first step. But knowing where to start is a new challenge altogether. With so many viable options out there, it's critical that you’re asking the right questions when evaluating if a 3PL is right for you. In this post, we’ll uncover the different types of things you should consider when vetting 3PLs and the questions you might want to ask to get the answers you need. 

How do 3PLs help with shipping?

Third-party logistics (3PL) providers manage the shipping of all of your orders for you, but they also provide benefits to your business beyond saving time and stress. For example, 3PLs have negotiated rates with major shipping carriers, and often pass those cost savings on to you. Some will also provide the basic necessities for shipping, like plain boxes, bubble mailers, and wet tape, at no cost to you. 

Each 3PL approaches shipping—and how they charge you for all the nuances involved—differently. With so many details to consider, it can be difficult to evaluate multiple 3PLs and compare their approach to shipping. To make it simpler, we’ve broken down the key questions to ask when considering a 3PL’s shipping practices and if it makes sense to outsource your ecommerce fulfillment

Evaluating shipping carriers, rates, and zones

It’s safe to assume that most 3PLs will have partnerships with the major domestic carriers, like UPS, FedEx, the United States Postal Service (USPS), and DHL. Some will partner with either FedEx or UPS instead of both because their rates tend to be very similar. Still, it’s worth investigating what carriers the 3PL you’re considering uses. They may be missing a major partnership, or maybe they have additional partners in regional carriers like CDL Last Mile Solutions or OnTrac. 

The bigger question, however, is the negotiated rates the 3PL has with the carriers. Because 3PLs move an enormous amount of inventory, they have the ability to negotiate bulk rates with carriers that are lower than what you’d pay to send something yourself at the post office or local UPS store, or even on a carrier account for your individual business. 

The price of shipping is determined by two factors: the weight of the package and the distance traveled. A rate table is the carrier’s pricing displayed on a grid, with weight along one axis, and shipping zone along the other. Getting full rate tables from carriers and most 3PLs is like pulling teeth—typically, they’ll only provide a snippet of the table. Wherever this cutoff is, prices tend to rise drastically for any rates not shared, leading to unpleasant surprises down the road. 

When evaluating a 3PL, ask about the rate tables they have for each carrier. Bigger, more complete rate tables, which some 3PLs are able to procure, will go a long way in helping you to determine the most cost-effective way to ship your products and in helping you to project your monthly shipping costs so you can budget accordingly. It will also help you to understand which of the 3PLs you’re considering has the best negotiated rates with the carriers.

This example of a rate card shows a snippet of the information you should request from a 3PL or 4PL in order to understand—and predict—your shipping costs.

Evaluating shipping speed and reliability

Consumers today expect their deliveries to be fast. Amazon primed most shoppers to expect next-day or two-day delivery, which isn’t feasible for most direct-to-consumer (DTC) brands; but that doesn’t mean you shouldn’t strive to see your orders delivered as soon as possible. 

When evaluating a 3PL, be sure to ask about how your orders will ship:

  • Will your orders always ship through a particular carrier, or will they be shipped via the carrier that is most cost-efficient per order? 
  • Can the 3PL’s technology map to your online store, so customer preferences are taken into account? For example, if a customer requests express shipping instead of standard, will that information automatically be passed to the warehouse and applied to the shipment? 
  • Does the 3PL have service level agreements (SLAs) around fulfillment and shipping? When can you expect orders will leave the warehouse? Can the 3PL promise same-day or next-day shipping?
  • What level of accuracy does the company promise? (Tip: Don’t just take their word for it—read reviews to ensure the 3PL is meeting customer expectations when it comes to speed and reliability.)
  • How are shipments tracked, and how will that tracking information be passed on to your customers?

Some 3PL and fourth-party logistics (4PL) companies offer shipping consultations, in which they’ll ask you about your product, where you’re shipping to, and typical order size and volume to help you determine the most efficient and cost-effective means for shipping the majority of your orders. They’ll also help you to decide if you should incorporate some of your shipping costs into the price of your product.

Because these are experts in the world of fulfillment, they can alleviate much of the pressure most entrepreneurs feel when outsourcing for the first time using their experience and industry knowledge. Keep in mind that your 3PL—or the 4PL managing the 3PL for you—should be a partner to you and your business. 

Evaluating a 3PL’s warehouse locations

Vetting a warehouse is nearly as complex as understanding the ins and outs of shipping, and therefore deserves its own deep dive, but the location of the warehouse you choose is critical to your shipping strategy. 

Each shipping carrier determines its own shipping zones. Shipping zones are how carriers determine the cost of shipping by distance traveled using zip codes. Within the continental United States, there are usually eight zones, with additional zones for Hawaii, Alaska and Puerto Rico. The further the delivery destination is from a package’s origin, the higher the shipping zone, and the more expensive it is to send the package. 

This is important because the location of the warehouse you use can have an enormous impact on the cost of your shipping. If using just one warehouse, it’s best to use one in a central location, like Texas. Even better is to use multiple warehouses in strategic locations. For example, a customer in Pennsylvania would have their order fulfilled through a New Jersey warehouse, while a customer in Oregon would receive the same product from a warehouse in California. 

When considering 3PLs, be sure to ask where their warehouses are located and if you’re able to store inventory in multiple warehouses. If you aren’t moving enough volume to warrant multiple warehouses just yet, make sure you have the option of using a centrally located site. 

Evaluating international shipping with a 3PL

International shipping is a double-edged sword. On the one hand, it opens new markets to your business—limiting your sales to one country means you’re not reaching millions of potential customers. On the other, international shipping is incredibly complicated due to differences in tax and duties by product type and country, and often so expensive it’s cost-prohibitive. 

Still, as your business grows, it’s likely you’ll want to expand to international markets. The best way to do this is to work with a 3PL that has warehouses in other countries. Much like shipping zones, this allows you to avoid the expense of sending individual orders across the ocean by storing inventory abroad. Shipping to European countries from the United Kingdom, for example, is a fraction of the price of sending the same goods from the United States. Plus, within economic unions like the European Union, you can avoid the headache (and expense) of duties, customs, and certain taxes. 

If an international warehouse is not available, you can still ship internationally through some 3PLs. Keep in mind there are two ways to do this: 

  • Direct Duties Unpaid (DDU): The customer pays to receive their shipment prior to delivery in their country. In this case, you’re passing on the cost of the customs, duties, and taxes to your customer through a shipping fee. 
  • Direct Duties Paid (DDP): You pay to cover the international shipping expenses and can pass along to your customer at checkout to simplify delivery. To get an idea of what this might cost you, use a cross-border duty calculator like Zonos

Evaluating returns with a 3PL

Returns are an inevitable part of running a retail business. Whenever possible, you’ll want to retrieve the product and put it back into your inventory, so it’s important that the 3PL you choose is willing and able to manage reverse logistics, or returns, for you. 

Here are some important questions to ask 3PLs about their return operations: 

  • How does the 3PL track returns to ensure they’ve been received, and the customer can be refunded? 
  • Does the 3PL ship with a prepaid return label in the box, or do you send your customers returns labels after the return is requested? If they’re provided by request, will they be sent via physical mail, email, or a self-serve returns tool? (Tip: Depending on your target demographic and frequency of returns, one option might be better for you than the others.)
  • How much should you charge customers for return shipping? Return shipping can be nearly or equally expensive as initial outbound order shipping, so plan accordingly.
  • Can you set your own criteria for how the 3PL should determine if a product should be restocked, or if it’s unable to be resold? 
  • What will the 3PL do with damaged goods? Can you have them returned to you, or will they be destroyed? 
  • How will you be charged for returns processing? 
  • How can returns be tracked within the 3PL’s or 4PL’s software? How will you know when a product has been restocked or if it is damaged? 

Look for a partner, not a vendor

Shipping is complicated, nuanced, and always changing. As one of the most complex factors in fulfillment, it’s critical that the 3PL or 4PL partner you choose has competitive rates, strategic warehouse locations, and a track record of reliable, fast operations. 

To learn more about Airhouse’s shipping practices, contact us today.

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