What is Third-party Logistics and Its Benefits

Third-party logistics, also called 3PL, refers to outsourcing the operations related to logistics to a third party. Such functions can include distribution, warehousing, as well as transportation services. So, third-party logistics providers are specialized in providing integrated warehousing and transportation services.

A third-party logistics provider can provide a few services like warehouse storage or transportation, or it can offer all services associated with the supply chain management of a business. Transportation or freight management, warehousing, packaging, inventory management, distribution management, fulfilment activities, and freight consolidation – all come under third party logistics services. And businesses that offer these services are known as third-party logistics provider or 3PL providers.

3PL providers that do not have their own assets are known as lead logistics providers. The term 3PL is often used to mean any service contract that involves storing and shipping items. The use of the term 3PL dates back to early 1970s and it was used to identify intermodal marketing companies (IMCs) in transportation contracts. Before that, only two parties used to feature in transportation contracts – the shipper and the carrier. IMC entered as intermediaries by accepting shipments from shippers and then giving them to the rail carriers. Thus, they became the third-party in contracts for transportation.

The main benefits of using 3PL services are time and cost savings. Outsourcing logistics services like packaging, warehousing, distribution, etc., help businesses reduce cost, as they don’t have to maintain a warehouse or a staff to supervise the supply chain operations. Moreover, it can ensure speedier delivery. When logistics services are taken care of by third parties, it becomes easier for businesses to scale their operations.  

In 2017, the global 3PL market was valued at $869 billion and is predicted to reach a valuation of $1,513 billion by 2025, growing with a CAGR of 7.1% from 2018 to 2025. Growing online sales and increasing consumer demand for faster delivery are fuelling the demand for 3PL services. Advancements in tracking technology like GPS (Global Positioning System) and RFID (Radio Frequency Identification (RFID) have improved supply chain visibility immensely, which in turn, has contributed significantly towards the growth of 3PL services. In the coming days, IoT will further improve tracking and thus, 3PL services. 

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