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Third Party Logistics Services Explained, The Different Types of 3PLs, and The Various Levels of Outsourcing

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In our post yesterday we covered the increasing use of third party logistics (3PLs) services by shippers to stay more efficient and allow for focus on their core competencies.  As a third party logistics services company, Cerasis is always speaking to potential shippers as customers who are well, just plain confused about what the heck is a 3PL company is and then are confused on what sort of third party logistics company they should here. As a 3PL, we are here to tell you, yes, the industry has created a LOT of confusion!

Today's post's goal is to hopefully take off that shroud of confusion for our readers and if you are a shipper, make it easier for you to not only pick the right third party logistics services company for your needs, but more importantly, if you choose one (or several as the rise of several niche logistics providers are on the rise) you can be successful at 3PL implementation.

First, What are Third Party Logistics Services and the Definition of 3PL?

To many, the definition of third party logistics services or the definition of 3PL, is rather fuzzy and can be ambiguous as there are many definitions, depending on who you ask. Some say “all or a significant part”, while others say “at least one part."

However, in our opinion, the best explanation of third party logistics services is probably a combination of those two notions, as third party logistics providers are businesses that provide one or many of the following third party logistics services:

  • Transportation or Freight Management (including technology, freight accounting, and services around claims) - Cerasis would fit in these types of services.
  • Public/Contract Warehousing
  • Distribution Management
  • Freight Consolidation

Further down in this post, we will then break out the various types of services in a more categorical approach.

Now for a more academic definition. According to the CSCMP Glossary, they define third party logistics services and 3PLs as:

Outsourcing all or much of a company’s logistics operations to a specialized company. The term "3PL" was first used in the early 1970s to identify intermodal marketing companies (IMCs) in transportation contracts. Up to that point, contracts for transportation had featured only two parties, the shipper and the carrier. When IMCs entered the picture—as intermediaries that accepted shipments from the shippers and tendered them to the rail carriers—they became the third party to the contract, the 3PL. Definition has broadened to the point where these days, every company that offers some kind of logistics service for hire calls itself a 3PL.

Preferably, these services are integrated, or “bundled,” together by the provider. Services they provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. In 2008 legislation passed declaring that the legal definition of a 3PL is “A person who solely receives, holds, or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.”

Now That You Know the Definition, What are the Different Types of Third Party Logistics Services

third party logistics services shippingAgain, depending on who you ask, you will get several different answer on what types of third party logistics services that are out there. To make it even more confusing, different 3PLs can be in only one of these types, or bleed into others. As stated previously, the goal for you as a shipper is to understand your needs and perhaps gather from this handy checklist what your requirements are in order to best assess what type of third party logistics services company you should start looking at hiring.

The following are the characteristics of the different types of third party logistics services:

Transportation Based Third Party Logistics Services

  • Services extend beyond transportation to offer a comprehensive set of logistics offerings.
  • Leveraged 3PLs use assets of other firms.
  • Non-leveraged 3PLs use assets belonging solely to the parent firm.
  • Examples: Ryder, Schneider Logistics, FedEx Logistics, UPS Logistics

Warehouse/Distribution Based Third Party Logistics Services

  • Many have former warehouse and/or distribution experience.
  • Examples: DSC Logistics, USCO, Exel, Caterpillar Logistics

Forwarder Based Third Party Logistics Services

  • Very independent middlemen with forwarder roles.
  • Non-asset owners that provide a wide range of logistics services.
  • Examples: AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, Hub Group

Shipper/Management Based Third Party Logistics Services

Financial Based Third Party Logistics Services

  • Provide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory.
  • Examples: Cass Information Systems, CTC, GE Information Services, FleetBoston

Information-based firms Third Party Logistics Services

  • Significant growth and development in this category of Internet-based, business-to-business, electronic markets for transportation and logistics services.
  • Examples: Transplace, Nistevo, FreightQuote.com, uShip

Levels of Outsourcing in Third Party Logistics Services

third party logistics services outsourcingNot all third party logistics services are created equal when it comes down to the relationship in the way you as a shipper will outsource to them. So, after you understand what a 3PL is and the types of third party logistics services, the following are the different types of levels of outsourcing you can see:

  • Transactional Outsourcing: Based on transactions, with no long term contracts and no bonding between the 3PL and the outsourcing company.
  • Tactical Outsourcing: Outsourcing on a long term basis with negotiated contacts and integrated IT systems to facilitate free information flow and create supply chain visibility.
  • Strategic Outsourcing: Based on long-term relationships with successful outcomes, 3PL companies become partners in supply chain management and establish transactional transparency.

At Cerasis, when our clients outsource to us, we have both a tactical (process elimination and automation) as well as a strategic relationship. This means, that some third party logistics services can provide the former two levels of outsourcing stated above. However, in the transactional side, this is usually focused on cost, and in our opinion, for true long term savings, the former two are the focus, and not the first. If you are an ebayer, or making a one time shipment, transacational third party logistics services are for you. If you have a supply chain and make regular shipments, look at the tactical and strategic outsourcing third party logistics services providers.

We hope this helps clear up some confusion. If you have any more to add, let us know in the comments section below!

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Adam Robinson
Adam Robinson oversees the overall marketing strategy for Cerasis including website development, social media and content marketing, trade show marketing, email campaigns, and webinar marketing. Mr. Robinson works with the business development department to create messaging that attracts the right decision makers, gaining inbound leads and increasing brand awareness all while shortening sales cycles, the time it takes to gain sales appointments and set proper sales and execution expectations.
Adam Robinson
Adam Robinson
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