Editor’s Note: Today’s blog is by our friend Augie Grasis, CEO and founder of FreightorGator. In this blog, Augie discusses the difference between Freight Exchange and a 3PL.
3PL vs Freight Exchange
As CEO and founder of FreightorGator, I am often asked how our freight exchange is different from other companies who offer freight services, particularly 3PLs. At a recent cocktail party, my friend asked, “Isn’t your company the same as FreightQuote? I can go online, define my freight, origin and destination, and get a call back right away with a rate. How are you any different?”
While a 3PL and a freight exchange are two things that are so obviously different to industry insiders, they look similar to the outside world. I often like to compare the two approaches to the travel industry: 3PLs are the Travel Agents while a Freight Exchange are akin to an online booking site like Expedia, Travelocity or Orbitz.
What is Freight Exchange?
To start with, an online freight exchange, like www.freightorgator.com is, literally online. This means that the entire process of quoting, booking, dispatching and tracking your LTL freight is automated and available on the internet. Quoting is real-time, often through direct API connections with carriers. Selection of your desired carrier and booking the shipment is done with one click of the mouse. Dispatch is done in the background through computer connections and you can get updated tracking of your freight anytime by referencing your shipment online.
Third Party Logistcs (3PL)
By contrast, a 3PL experience typically involves human interaction. While some of the steps are internet based, pricing queries typically result in a phone call or email interaction with a rep from the 3PL. The shipping process often involves numerous phone conversations throughout the process.
The type of shipping partner you choose depends on complexity of your shipment. If you are shipping a fragile item, an overseas shipment or an odd size item, you likely will need the support of an experienced professional to make special arrangements. On the other hand, if you are simply shipping a pallet from point A to point B, you will save time and money going through an exchange. The ability to compare prices of leading carriers, book, dispatch and track on your computer without picking up the phone is a far more efficient approach.
Another big difference between a freight exchange and a 3PL is their vastly different business models. A 3PL makes money by adding a markup to the shipment cost charged by the carrier. This markup ranges from 10% to 50% and it is often unknown to the shipper as he receives it as a lump sum bill. Sales reps are incentivized on the margin they are able to build in, which typically results in “margin creep” as your relationship with a 3PL progresses. 3PL’s typically grant credit terms, so payment is net 15 or 30 days by payment of an invoice.
FreightorGator, on the other hand, is fully transparent about what is charged to the shipper. We pass through the actual cost of shipping from the carrier and add a small handling fee of $25, and all costs are itemized so the customer knows exactly where her money is going. Payment is made by credit card at the time the order is booked which results in better prices from the freight carriers who gets paid quickly and points for the credit card holder’s next vacation!
So, which is better? That depends on you and the type of shipment you are making. Do you need a Travel Agent for an around-the-world tour or Expedia for a flight to Chicago? It’s up to you.