The pandemic has added words to our vernacular that many people had never heard before. Terms like supply chain, freight forwarding, 3PL, last mile and fulfillment are now much more familiar to the everyday consumer than they’ve ever been. However, as often happens with industry-specific verbiage, that doesn’t always mean the definition or understanding of these terms is widespread.
eCommerce shipping is a current hot button issue, forcing many people to spend more time thinking about how the products they buy actually make it from a factory in China to a shipping container to a US port to a warehouse to their front door. While this is part of the supply chain, two very specific types of businesses are more involved than ever – 3PLs and freight forwarders – and it can be hard to keep them straight … even for those who work in the industry.
Below is a breakdown of the differences between third party logistics (3PL) companies and freight forwarders, as well as an understanding of when a company might choose one type over the other.
Freight Forwarding Defined
A freight forwarder is typically a company that manages moving products from one place to another. They typically are a non-asset company that doesn’t manage trucks or drivers or any port workers – they manage the details of where a shipment is, where it can get loaded onto a ship, plane or truck, and how it will get transported to a warehouse for fulfillment and distribution.
The major benefit of a freight forwarder is that they can negotiate better rates with shipping companies due to the volume of product they’re moving. By working directly with carriers, freight forwarders can broker better rates than eCommerce companies often can on their own.
They can also work to coordinate shipments that might need multiple types of transportation throughout the journey, such as land to sea to land to air.
Freight forwarders also have a deep understanding of customs,imports and exports. These are the areas of shipping that typically have the most red tape and can easily trip up a newer or smaller eCommerce organization that doesn’t have previous experience with these issues or simply doesn’t have the bandwidth to manage these details.
Freight forwarders are also very familiar with every type of possible transportation, including sea, air and ground. Due to the breadth of their client base, they need to have a solid understanding of how to move any product for any company from anywhere in the world.
Third Party Logistics (3PL) Company Defined
A 3PL is an organization that can manage a few different processes. While a freight forwarder is strictly responsible for forwarding freight, a 3PL might be in charge of one, two or all of the following:
- Transportation: Services could include: LTL (less than truckload), FTL (full truck load) services, rail, air, ocean and/or trans-modal
- Warehousing & Fulfillment: Services could include: receiving, inventory management, returns, eCommerce fulfillment, B2B fulfillment, inspection, and/or kitting
- Forwarding: A freight forwarder can be considered a 3PL, too. Sometimes a freight forwarder also operates their own warehouses, but often still work with fulfillment centers like ShipHero to manage the B2C shipments
Yes, you read that right, it is possible for a freight forwarder to be considered a 3PL. In the end, it depends on how much of the logistics process they own – if a freight forwarder manages their own warehouse then there’s a good chance that they offer warehouse management services like pick, pack and fulfillment. This puts them more at the level of a 3PL, than just a freight forwarder.
The true value of a 3PL lies in their warehouse and fulfillment capabilities. They are equipped to handle eCommerce fulfillment duties from receiving to DTC to returns to storage. By outsourcing these tasks to a third party logistics company, eCommerce retailers are free from the worry of warehouse leases, employees, hiring and dozens of everyday tasks that are necessary to run a business that don’t impact the bottom line.
How to Choose Between a Freight Forwarder & a 3PL
The biggest question for most eCommerce retailers is how to choose between a freight forwarder and a 3PL. In general, there are a few scenarios that lend themselves more to one than the other. Here are a handful of situations to look for when choosing.
- You are only concerned with getting your inventory from one location to another.Maybe you’ve recently secured product that’s stuck somewhere in Canada and you need it in Michigan. In this instance, using a freight forwarder would be the perfect choice. Best option: Freight Forwarder
- You need to get your inventory shipped from China, into a warehouse and then shipped to consumers. This is a pretty perfect situation for a 3PL. They have the processes in place to manage shipping carriers, receive and putaway your inventory and pick, pack and ship your orders. Best option: 3PL
- You’ve acquired some inventory but it’s not enough to justify the cost of an entire shipping container. Freight forwarders can save money by combining different clients’ orders into one container. Since they have access to a variety of inventory locations and clients’ different needs, it should take them no time at all to organize the shipment and get it where you need it – normally for less than you expected. Best option: Freight Forwarder
- You’ve increased advertising for your product on the West Coast and now have a lot of orders pouring in from Washington State. Your current warehouse is in Maine – so this is creating a problem. Working with a 3PL will alleviate this issue in no time. Depending on size, most 3PLs have more than one warehouse and work to maximize your inventory distribution to keep shipping costs and times down. Best option: 3PL
Choosing between a freight forwarder and a 3PL is really about the long-term. If you are looking to forge a relationship with a logistics company that will act as a partner, and manage your fulfillment process from start to finish, you’re really looking for a 3PL. If you’re looking for a more transactional relationship that you may only use once or twice a year, then a freight forwarder will work.
