3PL stands for third-party logistics, while a freight forwarder is a company that organises the shipment of goods from one location to another.
This article will provide information about logistics, focusing on the differences between 3PL (Third Party Logistics) and freight forwarders.
The discussion will highlight how these entities differ in terms of services provided, asset ownership, customisation, industry focus, and scale of operations.
The comparison between 3PL and drop shipping will also be discussed to provide a comprehensive understanding of these vital components in the logistics industry.
What is Third-Party Logistics (3PL)?
You might’ve heard of a freight forwarder, but you must also know the 3PL meaning because it is valuable to understand the role in the field of shipping and handling.
A business that offers third-party logistics services is called a 3PL provider. The services which are beneficial for businesses that need help with various aspects of their supply chain, such as transportation, warehousing, picking and packing, inventory forecasting, order fulfilment, packaging, and freight forwarding.
The distinguishing feature of third-party logistics providers is their ability to seamlessly integrate into your supply chain, offering a more efficient and cost-effective solution. Therefore, when considering the best way to manage your logistics, you should take into account the potential advantages of a 3PL.
What is a Freight Forwarder?
A haulage forwarder plays a pivotal role in supply chain operations. Essentially, they act as a facilitator, managing the shipping process for businesses. Their services encompass the organisation of transport, handling of customs documentation, and assurance of safe and efficient delivery of goods.
Their role isn’t to move the goods themselves but to negotiate and coordinate with different carriers, whether by air, sea, or land, to transport your products from one location to another. They oversee every aspect of your shipping process to ensure it runs without a hitch.
They act as the orchestrator of your shipping operations, coordinating all elements for smooth execution.
Differences Between 3PL and Freight Forwarding in Logistics
Understanding the logistics needs of your business requires a clear distinction between the roles of a 3PL provider and a freight forwarder. A third-party logistics company, or 3PL, usually offers a wider range of services compared to freight forwarding companies. They handle all aspects of logistics operations, including warehousing, inventory management, and transportation.
On the other hand, freight forwarders are experts in coordinating the shipping and storage of goods for shippers. They have specialised knowledge in managing complex shipping routes and ensuring goods reach their destination in a timely manner and optimal condition.
In the logistics industry, choosing the right partner is crucial. The decision between a comprehensive solution like a third-party logistics provider or the specialised expertise of freight forwarders depends entirely on the specific requirements of your business.
1. Scope of Services
The services provided by 3PLs and freight forwarders differ significantly, thereby influencing the choice between these two logistics partners.
3PL providers, also known as third-party logistics services, provide extensive logistics outsourcing support. Their offerings span warehousing, transportation, inventory management, and reverse logistics. Essentially, they operate as a comprehensive shipping company, overseeing intricate logistics operations from inception to completion.
Conversely, freight forwarders concentrate on specific areas. They primarily deal with freight forwarding and customs brokerage. Their offerings are indispensable for international shipping; however, they may not offer the extensive logistics management provided by 3PL providers.
Therefore, your choice should depend on your unique logistics requirements.
2. Asset Ownership
Asset ownership denotes a major distinction between 3PLs and freight forwarders. 3PL entities usually own their transport facilities, such as warehouses, lorries, and even planes, providing them considerable command over the shipping process. This ownership affords them a level of flexibility and control.
Freight forwarders, however, typically don’t own these assets and instead collaborate with haulage companies and shipping carriers to transport goods. This absence of asset ownership may curtail their control over the transport process.
Therefore, during the process of choosing between a 3PL and a freight forwarder, the factor of asset ownership should be considered. It holds the potential to significantly affect the efficiency, reliability, and control of your shipping operations.
3. Level of Control
Taking into account the aspect of asset ownership, the extent to which you can control shipping operations can differ significantly if you decide to collaborate with a 3PL or a freight forwarder.
When you collaborate with a 3PL firm, you obtain more control over logistics as they provide extensive services due to their asset ownership. The logistics provider manages the specifics, allowing you to concentrate on your business.
On the other hand, a freight forwarder, acting as an intermediary, provides a lesser degree of control. They organise shipping but don’t own the assets; hence, your control is confined to selecting your forwarder. Therefore, control in 3PL services is more pronounced than in freight forwarding.
The impact of technology on your choice between 3PL and freight forwarder will be discussed next.
4. Technology
Technology’s involvement in logistics may seem simple at face value, but it’s more intricate, particularly when assessing third-party logistics providers (3PLs) and freight forwarders.
Technology is a key factor in the 3PL versus freight forwarder discussion. 3PLs invest significantly in logistics technology such as Warehouse Management Systems (WMS), Transport Management Systems (TMS), Electronic Data Interchange (EDI), and analytics. These high-tech tools aid in the management of logistics services across numerous carriers and shipping lines, offering tracking and tracing capabilities for improved control.
Conversely, freight forwarders utilise less complex systems. Their technology primarily centres on pricing, shipping, and tracking documents, which fulfils their needs but doesn’t match the complexity of 3PL technology.
Grasping these technological discrepancies is pivotal when deciding between the two.
Now, we should examine the strategic value each provides.
5. Strategic Value
Evaluating the strategic value can show substantial differences between 3PLs and freight forwarders, adding complexity to your decision-making process.
During the evaluation of 3PL vs freight forwarder, it’s crucial to take into account the perks of supply chain management. 3PLs generally provide a more comprehensive set of services, which include order management, and this could result in cost savings for your business over time.
Conversely, freight forwarders concentrate on the transportation component, which may be sufficient if your company has a dependable logistics team internally.
The selection hinges on the strategic needs of your firm. Comprehending the strategic value of each service can aid in making a decision that aligns with your present and future logistics requirements.
6. Customisation
Customisation stands out when contrasting 3PL services with freight forwarders. The former offers a tailored, flexible service that is vital in efficient inventory management.
3PL services can adjust to specific requirements throughout the supply chain, from procurement to sales channels. They possess the ability to handle your inventory in their warehouses and distribute it to points of sale, providing a substantial advantage.
Freight forwarders, on the other hand, offer a more uniform service with reduced flexibility. They generally engage less in the complexity of your supply chain, focusing more on transport from one location to another.
7. Industry Focus
Taking into account the specific services provided by a 3PL, evaluation of their industry focus as opposed to freight forwarders could be beneficial.
3PLs often have a preference for certain sectors, providing solutions that are tailored to meet the distinctive demands of each industry. It could span from healthcare to automotive, providing clients with an advantage in managing industry-specific hurdles.
Conversely, freight forwarders generally cater to a wider range of clientele. Even though this may not offer the same degree of personalisation, it provides greater flexibility and a more diverse set of general services.
The decision between specialisation and versatility is a balancing act. The deciding factor should be your business’s specific requirements, be that industry-focused expertise or a broader approach.
8. Scale of Operations
The size of your operations can determine if a 3PL or a freight forwarder is best for your business. For extensive global operations, a large 3PL with an international logistics network could be suitable. They can manage high-volume, intricate supply chains across various continents.
Conversely, if your operations are regional or concentrated on specific trade lanes, a freight forwarder might be the better option. They often specialise in these areas and might provide more personalised services. Assessing your operation’s size is a vital step in making this decision. Following this, another comparison worth considering is ‘3PL vs drop shipping’ to further fine-tune your logistics plan.
3PL vs Drop Shipping
Evaluating 3PL vs drop shipping is a crucial step in determining the most effective logistics strategy for your business.
Drop shipping is a method where storage, packaging, and delivery are outsourced. It might be a financially viable option for small to medium-sized businesses handling high volumes of small, lightweight orders.
However, this method involves giving up control over order fulfilment, which might affect the customer experience.
On the other hand, 3PL provides more control and the potential for expansion. This method is often more financially viable for larger businesses or those handling larger items.
However, maintaining a good relationship with your 3PL provider is necessary to ensure high levels of service.
