Third-party logistics, also known as 3PL, refers to the outsourcing of operational tasks related to the transport of goods from manufacturers to end consumers, especially by ecommerce businesses. Learn more about 3PL services, benefits, and how to choose the right fulfillment partner.
Third-party logistics companies, also known as 3PLs, help direct-to-consumer brands manage one of their most critical operational tasks: order fulfillment. 3PLs handle tasks like warehousing, inventory management, order preparation, and shipping.
Some 3PL companies offer a variety of services beyond just warehousing and shipping, including:
Others offer specialized services. For example, a company providing 3PL services to the food industry might focus on cold fulfillment. Other companies deal with hazardous materials or bulky products such as furniture. In any case, their warehouses, transportation methods, and partner vendors should be up to the challenge.
Comparing 3PL companies? Use our compare tool to see how Airhouse compares to the competition.
Standard operating procedures may vary from company to company, but every 3PL follows the same general steps to order fulfillment.
First, the ecommerce company must send its inventory to the 3PL warehouse via freight. Some 3PLs offer freight coordination, or for more complex freight management, the company might use freight forwarding.
Every 3PL—and sometimes even individual warehouses within a 3PL’s network—will have its own standard process for receiving inventory. The company sending the inventory will need to schedule a receiving window with the warehouse, so there is docking space and staff available to receive the shipment.
The receiving process involves unloading stock off the truck, verifying that the inventory received matches what was expected, and properly storing the goods in the warehouse.
Once the inventory has been unloaded, it’s put away in the warehouse. Depending on the size of the items, they may be stored on a pallet, on a shelf, or in a bin.
3PL warehouses are carefully organized to maximize efficiency. Inventory is usually stored using a SKU management system so items are easy to find when they’re ordered. Popular items sold by high-volume merchants may be stored closer to packing stations.
It’s important to note that not all warehouses offer the same storage capabilities. Certain specifications, like cold storage, are uncommon and cost more. Your company should also consider whether the warehouse you choose has the space to accommodate a growing brand—just because they can store all of your inventory today doesn’t mean they’ll have space for your inventory a few years down the line.
Once a customer places an order through your ecommerce store, an employee will find the SKUs for the order in the warehouse. This is the first step of pick and pack.
How the order details make their way to the warehouse depends on the 3PL’s technology. Old-school warehouses may rely on manual order management—in this case, you might send a spreadsheet with all the orders from a given day and email it to the warehouse for fulfillment. Modern 3PLs have direct integrations with popular ecommerce platforms and an open API for brands that have built their own checkout solution. In this case, orders are passed from the online store to the warehouse in real time so they can be fulfilled immediately.
When the warehouse employee has gathered all of the SKUs in a given order, they’ll bring the items to a packing station.
The second step in order preparation is packing. At the packing station, an employee will put your customer’s items into the packaging that a shipping carrier will accept. Most 3PLs will provide standard sized packaging—envelopes, poly mailers, and boxes—for free or at cost. Or, you may choose to provide your own branded packaging that you provide to the warehouse.
As experts in fulfillment, the 3PL should choose the optimal packaging for each order. Some will determine the best packaging on a per-order basis, while others will work with you to develop custom order prep SOPs. It’s important to use packaging that will keep items safe in transit while not needlessly increasing dimensional weight, which can drive up the cost of shipping.
The packer will secure the items in their packaging with any necessary dunnage and secure the package with tape as necessary, then apply a shipping label. The package is now ready for the carrier.
Once the package is ready, it’s picked up from the warehouse by the shipping carrier. The 3PL will provide a service level agreement, or SLA, that sets expectations for when an order will leave the warehouse after it’s been placed online. Most 3PLs promise to ship DTC orders the same day, with a cutoff time, after which point orders will be shipped the following day. For example, Airhouse fulfills DTC orders the same day until 11 a.m. local time—orders placed after 11 a.m. will be shipped by the following day.
Shipping through a 3PL comes with significant cost savings for most brands. Because of the high volume of orders their warehouses ship every day, 3PLs have strong negotiating power with shipping carriers, and they pay less in shipping fees than a small business would if they went directly through the carrier. The 3PL passes these savings on to its merchants.
Most 3PLs will also handle returns, or reverse logistics, for their customers. If a customer needs to send an item back, they can ship it to the warehouse, where it will be received and inspected. If the item can be resold, it’s restocked; if it’s damaged, the merchant may choose to have the item sent back to them, or disposed of.
How the end customer ships the returned items will depend on the brand’s return policy. If the brand offers free returns, either the merchant or the 3PL may provide a shipping label to the customer.
Some 3PLs, like Airhouse, have integrations with returns management software like Loop to streamline this process.
Third-party logistics and fourth-party logistics (4PL) are similar in that they both refer to outsourcing fulfillment and supply chain management. The key difference between 3PLs and 4PLs is that merchants work directly with 3PLs, which operate the warehouses, while 4PLs introduce another layer of management. 4PLs do not own or operate warehouses, but oversee the management of a 3PL or series of 3PLs on a merchant’s behalf.
Just about any ecommerce brand stands to benefit from outsourcing fulfillment to a 3PL, but this is especially true for direct-to-consumer order fulfillment. When consumers can’t interact with your products in a tangible way before purchasing, their fulfillment experience is paramount to their perception of your brand. To put it in perspective, 38% of online shoppers say they’ll never order from a brand again if they have a poor delivery experience.
When your brand is just starting out, you might feel like you can manage fulfillment in-house; but as your company scales, the complexity of your logistics will increase exponentially—not to mention the time it will take for you to prepare those orders. Two of the biggest reasons DTC companies outsource are (1) to ensure they can keep up with growing demand without fumbling on the fulfillment experience and (2) to free up the leaders’ time to focus on more strategic initiatives. Once you’ve started fulfilling 100 orders per month, it’s probably time to outsource.
In fact, DTC founders and investors say that securing a reliable, scalable distribution system early in the brand’s lifetime is crucial to successfully growing a brand. It’s one of the five guiding principles Airhouse identified in The New Direct-to-Consumer Playbook.
Learn how noise-control brand Good Life saved 30% in fulfillment costs by outsourcing to Airhouse.
Ecommerce companies often struggle with managing fulfillment logistics—on top of their core business operations—which is why many turn to experienced 3PL providers.
Here are the benefits of entrusting your ecommerce fulfillment logistics to a 3PL provider:
A 3PL service provider is an expert in logistical matters. They are familiar with international and domestic trade regulations, documentation, shipping regulations, and economic compliance. Whenever a shipping issue arises, they can pull from their experiences and find a solution. It’s essential to know your products well, but you don’t need to be an expert on everything—especially regarding supply chain complexity and unpredictability.
Logistics is a critical component of your business, but it’s often not one of your core competencies. Management usually has its hands full with responsibilities like product development, marketing strategy and planning, and other revenue-generating tasks. Outsourcing fulfillment allows you to focus on your strategic business activities without compromising a key operational process.
Outsourcing ecommerce fulfillment to a 3PL company allows businesses to save time and money in two ways.
First, as part of their logistics service, they share their technology, transportation, warehouses, and personnel with you. Not only does that flatten the steep learning curve of fulfillment, but it reduces the number of variables you’ll have to control. Instead of sourcing infrastructure, employees, and warehouse management system (WMS) technology, you’ll have a single provider in your 3PL.
Second, their expertise in supply chain management can reduce the likelihood of ecommerce businesses making costly and risky errors. For example, they can help predict inventory levels and provide valuable insights into how seasonal fluctuations may impact fulfillment.
Working with a 3PL converts some otherwise fixed costs to variable costs. For example, you won’t have to bear the overhead expenses of running an entire warehouse—you’ll only pay for the storage and labor you need during a given period.
All businesses—especially growing ones—experience peaks and valleys. Using a 3PL makes it easier to manage market changes. You can scale operations up or down without taking on the risk of building a new fulfillment center or onboarding new employees.
Working with a 3PL that has a large network can enable brands to scale without hitting roadblocks or setbacks related to logistics. Instead of spending time sourcing a new warehouse (or a new 3PL, if the first one didn’t have enough space or locations), the brand can seamlessly expand into additional warehouses under the same 3PL umbrella.
This is especially useful as companies grow large enough to employ a multi-warehousing strategy or explore international expansion.
Customers value quick delivery. The turnkey logistics services offered by 3PLs can increase fulfillment efficiency, meaning consumers get their orders faster, and in turn, trust the brand more.
Here are just a few examples of the ways a 3PL can ensure customers get their purchases more quickly:
Comparing the cost of 3PLs is challenging because each company structures its pricing differently, but most 3PL pricing models fit one of two molds: all-in-one or a la carte.
Some 3PL expenses are obvious, like storage and shipping costs. But there are also fees associated with carrier surcharges, custom packaging, order preparation, and receiving. With all-in-one pricing, these costs are bundled together, so you pay one price for all of the warehouse operations and one for all shipping costs. A la carte pricing, on the other hand, charges for individual fees, so you can see exactly where the money you’re spending on fulfillment is going.
Here’s a quick explanation of the main differences between the two models:
In addition to understanding a potential 3PL partner’s pricing model and cost structure, there are a few key qualities you should look for. If you intend to outsource your logistics operations to a 3PL provider, consider the following when researching and speaking with potential partners:
Establishing retail partnerships is a common growth strategy for DTC brands—Airhouse research found that 60% of them sell through partner retail channels today. But in order to establish these partnerships, your brand needs to be prepared to handle wholesale shipping, which requires an entirely different kind of wholesale expertise from your warehouse. If you’re looking for a 3PL that will help you scale, be sure it’s prepared to handle both DTC and B2B order fulfillment.
If your brand is preparing to launch international sales, or if expanding internationally is on your business’ roadmap, you’ll want to look for a 3PL with international warehouses. By storing inventory abroad and shipping orders from a fulfillment center near your international customers, you can minimize how much you pay in customs duties and deliver international orders at domestic prices.
In an ideal world, your inventory would arrive at the warehouse completely ready to be sent to customers. But in the real world, that’s not always possible. You may need your 3PL to manage projects like kitting, bundling, or barcoding after it’s received your inventory. Be sure to evaluate whether the 3PLs you’re considering offer these value-added services at a reasonable rate.
Since modern 3PL companies do more than just warehousing and shipping, they’re more involved in your business. This level of involvement calls for seamless communication whenever an issue arises, which can be difficult if your 3PL customer support model uses a ticketing system or call center.
The best case scenario is finding a 3PL that offers dedicated Account Managers, so you’ll have a direct line of communication with the person who acts as your warehouse liaison. Even better is a 3PL partner that is proactive, raising concerns or troubleshooting issues before they impact your operations.
In the world of 3PLs, flexibility equals customization—and customization supports scalability. Businesses grow. As your operations change, your logistics partner should be able to accommodate these developments. As an example, imagine you’d like to add subscriptions and wholesale services to your ecommerce business. Your 3PL partner should be able to customize a package to suit your new set of needs. Otherwise, you’ll need to find a new provider.
Brand consistency is an essential component for any ecommerce brand that extends to order packaging and shipping. You’ll want to be sure your 3PL is willing and able to support custom packaging, custom fulfillment logic, and custom SOPs.
Integration with the rest of your ecommerce ecosystem is key to the success of your 3PL provider. Getting it up and running shouldn’t be difficult. Make this a priority, especially if you’re not tech-savvy. You’ll also need access to a fast, real-time interface to help you make informed business decisions and to monitor your operations from a distance.
Table stakes for modern 3PL technology include direct integrations with your ecommerce store, real-time insights into warehouse operations, order tracking, inventory management, EDI compliance, and an open API. You may also want to consider whether the technology can support functions like carrier-calculated checkout rates, simple if/then custom logic, and self-service project requests for value-added services and wholesale orders (as opposed to needing customer support to push these projects forward).
Supply chain management shouldn’t operate on assumptions and estimations. 3PL systems should call for accurate inventory, shipping, and order processing. If you don’t trust their infrastructure, it can come back to bite you. Remember that your products will go from your manufacturer to your 3PL provider to your customers. Having to double-check the process defeats the purpose of outsourcing.
Of course, no 3PL will be perfect 100% of the time, but you must feel comfortable that the vast majority of your orders will be delivered without a hitch.
Logistics providers should have a good reputation not only from their clients but also from the vendors and agencies they work with. If they do, it’s a sign they can offer you great service and allow you to connect to an amazing network. For instance, a 3PL provider can find you a warehousing facility specializing in the type of products you sell—instead of you finding one yourself.
Security is an important indicator of a 3PL provider's performance. Your partner’s responsibility is to safeguard your data and the resources you give them. Using their services obligates you to comply with their security policies and protect your business information from loss, misuse, unauthorized access, disclosure, alteration, or destruction.
So, is a 3PL worth it? The answer will depend on your business needs and current situation. If your in-house logistics functions like a well-oiled machine, there may be no need to outsource.
However, if any of the following apply to your business, you’ll probably want to outsource:
Some 3PL companies only deal with warehousing and order fulfillment, while others provide additional services, like forecasting and freight coordination. Find one that suits your ecommerce company's needs.
There are tons of 3PL companies to choose from. Some are tech-forward, while others are hyper-focused on logistical movement. Each comes with its own pros and cons, but some of the top 3PL companies are:
Claiming that satisfactory order fulfillment is a key element of ecommerce success isn’t an overstatement. That’s why DTC brands around the world rely on 3PL providers to manage order fulfillment and shipping. Using a third-party logistics provider like Airhouse to manage your fulfillment logistics can ensure smooth supply chain operations, satisfied customers, and a healthier bottom line.
Airhouse’s fulfillment experts can provide you with the insight you need to scale your business and eliminate logistical headaches. Let’s talk.
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