How Do 3PL Companies Make Money?

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Written By Charlotte Miller

Have you ever wondered how do 3PL companies make money? Most e-commerce business owners struggle with order fulfillment as the businesses grow. For many well-established businesses, it is not feasible or possible to fulfill customer orders in-house. Therefore, most business owners outsource some of their e-commerce operations to Third-Party Logistics (3PL).

As the businesses expand, the fulfillment strategies need to be revised as well. It is wise to hand over some of the e-commerce operations to a Third-Party Logistics company. As most individuals are unaware of how 3PL companies work and how do they make a profit, here’s how they do so.

How Do 3PL Companies Work?

An effective e-commerce fulfillment strategy is required to grow and scale your businesses, 3PL companies help you with this task. Third-party logistics means outsourcing e-commerce logistics processes to a third-party business. 3PL providers offer the tools and infrastructure that businesses lack to automate the huge number of retail orders.

Companies have been inclining towards inbound and outbound outsourcing since the ’70s. With the expansion of e-commerce, 3PL has become ubiquitous and most businesses are acquiring services of these companies. Third-Party Logistics has expanded its services over time. They provide a wide range of services today to facilitate e-commerce operations.

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How Do 3PL Companies Make Money?

As many of you know, the logistics sector focuses on transportation, inventory, warehousing, material handling, packaging, and disposal. This sector can be segmented into four main categories; freight companies, freight forwarders, carriers, and third-party logistics companies.

3PLs offer all or part of the logistics for the supply chain of the business. Their services are influenced by the client’s needs, 3PLs providers can either be hired for transportation and storage or they can be an extensive part of the business model. 

These companies make a profit by providing services throughout the supply chain from the point of origin to the point of consumption. 3PLs charge money for planning, implementing, and executing the movement and storage of products and materials and delivering the orders to the customers.

Due to the rise of the e-commerce complex, 3PL is now in demand more than ever. Most high-end businesses can not effectively fulfill orders without getting the help of a third-party logistics organization. Businesses can focus on other niches and departments while 3PLs takes care of the e-commerce operations. These companies make money by offering different services like

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  • Warehousing – Most businesses struggle with warehousing, in most cases, it is increasingly complex and very costly. Most logistics companies make money by finding and providing adequate storage space in a good location saving clients time and stress. 
  • Transportation and Shipping – It can be quite costly for manufacturers and merchants to invest in their own fleet of vehicles and drivers. It takes a lot of effort to get necessary licensing and train staff. Transporting and shipping products with business-owned vehicles just adds to the expense. 3PLs generate revenues by offering these services to businesses. 
  • Technology – Most 3PLs have advanced technology and software to digitize the supply chain. Modern technology allows greater efficiency and reliability. 3PLs use collaborative transportation management software to automate load schedules. Other technologies used by these companies include tracking software, internet of things devices (IoT), and long-range RFID tracking.
  • Packaging – Businesses require an experienced workforce and specialized equipment to fulfill customer orders on time. Logistics companies already have the necessary technology and staffing, so, they generate revenue by helping clients meet customer demands with minimized delays and errors. 

Wrap Up

Most businesses hire 3PL to deal with e-commerce operations, warehousing, transportation, and order fulfillment. These companies have the resources and proficiency to do so effectively. 3PLs generate revenue for the services provided to the business in relation to the supply chain.