Why do businesses outsource to 3PLs? Mainly because these providers offer the expertise and infrastructure to streamline operations and optimize the complex flow of goods from manufacturer to final customer and back, at the end of a product’s lifecycle.
But let’s rewind to what 3PL actually is.
What Is A 3PL? (Third-Party Logistics Meaning)
A 3PL is a third-party logistics company that manages a variety of supply chain functions for a business. 3PLs act as an extension of a company’s own logistics department, taking over critical functions that require capital investment and specialized knowledge, such as warehousing and inventory management, order fulfillment, transportation management, and reverse logistics.
How It All Began: Short History Of The 3PLs
The rise of third-party logistics (3PL) providers took place in the 1970s, when companies began outsourcing certain logistics functions, such as transportation and warehousing, to third parties.
In 1980, the Motor Carrier Act, which deregulated the US trucking industry, created a more competitive and fragmented market that led to the gradual emergence of specialized logistics providers.
In the 1990s, as globalization expanded and emerging economies like China and India gained power, supply chains became more complex. To stay competitive, businesses needed to focus on their core competencies and outsource logistics to specialized 3PL firms.
Fast-forward a few years, and with the rapid expansion of e-commerce and technological advancements of the 2000s, the demand for faster, cheaper, yet more complex fulfillment solutions made 3PL providers essential partners for everyone involved in the modern supply chain.
Today, the 3PL logistics market is a cornerstone of global trade, currently estimated at USD 1.15 trillion, and is expected to reach USD 1.48 trillion by 2030, at a CAGR of 5.18%.
What Does A 3PL Do?
A 3PL specializes in handling source-to-shelf logistics and their return flows, moving goods efficiently through the supply chain. In practice, 3PLs boost clients’ operational agility and profitability by taking on and optimizing day-to-day logistics tasks:
Warehousing & Inventory Management
3PLs provide the physical space to store goods and also manage stock levels using advanced Warehouse Management Systems (WMS) and Inventory Management Systems (IMS), which are, in turn, connected to their clients’ Electronic Data Interchange (EDI) or directly integrated into their e-commerce platforms.
Order Fulfillment (Pick And Pack)
This is a core 3PL service where items are picked from storage, packed correctly, and prepared for shipment. In B2C scenarios, like e-commerce, different ordered items are packed together and shipped to the consumer’s home address.
B2B order fulfillment, on the other hand, focuses on consolidating large volumes of products shipped or fulfilling massive wholesale purchases. Either way, amidst thousands of SKUs and storage ft², surges, shortages, and pressing customer demands, order fulfillment is a highly complex process that can make or break a brand.
Transportation Management
Anyone can ship a parcel. But for a business, 3PLs have all the right connections and knowledge to arrange optimal parcel or freight shipping across all modes (air, ocean, rail, road). They select carriers, negotiate rates, handle necessary paperwork, design optimized routes, and oversee shipments in real time to their final destination.
Reverse Logistics
When products are returned, fail under warranty, or reach the end of their useful life, 3PLs manage this complex reverse flow, handling each item in the most cost-effective and sustainable way: restocking, refurbishing, donating, recycling, or responsibly disposing of products.
In B2B environments, reverse logistics 3PLs manage large-scale, compliance-sensitive returns – such as full equipment or infrastructure refreshes – alongside complex, time-critical product recalls that would otherwise put heavy pressure on internal teams.
Value-Added Services
The true value of 3PLs often lies in their flexibility to meet a client’s specific needs at every level, with optimized operations and scalable solutions as the core drivers of future growth.
Today, 3PLs offer extensive customized services such as kitting (grouping separate items into a single SKU), assembly, custom labeling, and even light manufacturing to get products market-ready faster, without the client needing to invest in extra facilities or personnel.
By outsourcing core logistical tasks, a company can focus on product development, marketing, and/or sales, without having to deal with all the complexities of supply chain management.
3PL Examples: Real-World Business Success Stories
In the fast-paced and multifaceted arena of global trade, unexpected challenges are inevitable. As a result, third-party logistics are valuable partners that can solve intricate operational problems their clients face.
Here are a few examples of how 3PLs help their clients not just cope with challenges, but continue to perform at a high level.
Third-Party Reverse Logistics Clears Returns Backlogs
A global footwear brand was stuck with about 1,000 trailers of unprocessed returns, taking weeks to sort manually.
When a 3PL came into play, they first applied data science and machine learning to incoming returns data to prioritize high-value items, i.e., those with the biggest resale potential, to accelerate capital recovery.
Moving on to a dedicated reverse logistics center, they automated processing with smart tech such as mechanized sorting, touchless scanners, and goods-to-person robotics, to clear the backlog and bring return cycles down to roughly 48 hours.
Optimizing Monthly Shipments With 3PL Tech
A pet nutrition company handling more than 45,000 deliveries per month needed to optimize its complex North American transport network.
The 3PL provided the high-tech digital infrastructure required for full network visibility. The system delivered real-time tracking and forecasting tools, creating a single source of truth for all operations and enabling proactive issue resolution. The brand and its 3PL worked as one team, connecting their systems directly and staying in constant, transparent communication.
The collaboration resulted in a consistent 99% on-time delivery rate, ensuring customers always received their specialized products on schedule.
Scalable Growth Powered By 3PL Fulfillment For E-Commerce
A fast-growing cosmetics brand was overwhelmed by demand, facing a 30,000-customer waitlist and an in-house operation that couldn’t handle the surge.
The company decided to outsource fulfillment to a 3PL that provided a state-of-the-art WMS that integrated with their e-commerce platform. This approach automated order processing and provided real-time inventory visibility. Leveraging the 3PL’s distributed warehouse network also brought inventory closer to customers, enabling scalable two-day shipping.
This approach helped the brand clear the backlog and achieve a 50% increase in market share within the first year.
And these are some of the measurable benefits businesses can gain. Let’s look at some more.
The Benefits Of Outsourcing To A 3PL
Partnering with a 3PL offers numerous strategic and operational advantages that help businesses compete more effectively in today’s fast-paced market.
Cost Efficiency & Resource Management
Outsourcing logistics is often more cost-effective than building an in-house operation. Cost pressures – particularly transportation costs – are the top challenge US sippers face.
By working with a third-party service provider, businesses avoid the massive capital expenditure required for warehouses, transportation fleets, and technology systems.
Furthermore, 3PLs use their scale to negotiate better rates with carriers and pass those savings onto clients.
Expertise & Industry Knowledge
Logistics professionals at 3PLs specialize in optimizing supply chain processes.
They stay current with the latest regulations, trade compliance rules (like customs documentation or nearshoring programs such as IMMEX), and industry best practices.
This expertise ensures risk-free, compliant, and accurate operations. Indeed, 68% of shippers say their 3PLs are providing new and innovative ways to improve logistics efficiency.
Scalability & Flexibility
A 3PL can easily scale operations up or down to meet fluctuating demand, such as during seasonal peaks or promotional campaigns. This flexibility ensures businesses aren’t locked into fixed space or headcount commitments, allowing them to adapt quickly to market changes.
Technology & Visibility
Modern 3PLs invest heavily in advanced technology, such as Warehouse Management Systems (WMS), Transportation Management Systems (TMS), and real-time visibility platforms.
These systems automate data flows, reduce errors, and provide clients with continuous visibility into inventory levels and order status, often achieved by connecting client ERP or EDI systems directly.
Why U.S. Businesses Rely On Mexico-Based 3PLs
Mexico-based 3PLs are a growing nearshoring solution for U.S. businesses. The proximity of the two countries and favorable trade agreements like the USMCA encourage relocating production and distribution closer to home to boost supply chain resiliency and reduce lead times.
This has led to Mexico surpassing China as the U.S.’s top trading partner, intensifying demand for Mexico 3PLs and maquiladora services that leverage warehousing in duty-free import programs.
Strategically located in Tijuana, just 18 miles from downtown San Diego, California, and near major transportation lanes, Loginam extends its 20 years of experience in flexible warehousing, kitting, and pick and pack solutions that make B2B order fulfillment more streamlined and cost-effective.
Ready to up-level your B2B fulfillment? Contact Loginam today!
FAQs On 3PLs
Asset-Based vs Non-Asset-Based 3PLs: What Do They Mean?
Asset-based 3PLs own physical assets, such as trucks, trailers, and warehouses. In contrast, non-asset-based providers arrange logistics services for shippers but do not own the physical equipment, instead relying on carrier networks, partner warehouses, and other third-party outsourced facilities. Today, the majority of providers employ a hybrid approach.
What Is 3PL Fulfillment?
3PL fulfillment is a core logistics process managed by a third-party logistics provider that handles everything from picking items from the warehouse shelves and securely packing them to preparing the final shipment for the customer. This service includes order management, ensuring accuracy, coordinating with carriers, and often managing returns.
What Is A 3PL Warehouse?
A 3PL warehouse is a facility operated by a third-party logistics (3PL) provider used for inventory storage and fulfilling orders for its clients. These warehouses also handle receiving, picking, packing, and shipping products, and are often strategically located to optimize distribution for the clients they serve.
