What is a 3PL? A Retailer’s Guide to Third-Party Logistics

March 12, 2024

min read

Predicted to nearly triple in market size by 2030, third-party logistics (3PL) has become the go-to strategic imperative for eCommerce retailers, who want to maximise their growth. As competition has increased in the 3PL space, the need to differentiate, and offer value-added features has too. While in the past, fulfilment warehousing was more of a commodity, providers are innovating, offering features such as inventory analysis, customs clearance, manufacturing, outsourced customer service and sustainability initiatives.

The history of third-party logistics

Since the dawn of agriculture, there was a need to store and stockpile goods: “Archaeological evidence indicates that the Ancient Egyptians were highly skilled in designing logistical systems. Further, the core goals (transportation, sourcing of raw materials, distribution of the essentials of life and war) of logistics found in Ancient Egypt have largely remained the same in modern business logistics - only the technology and execution of those goals has matured.”

It wasn’t until the industrial revolution, and mass production of products, that warehousing and storage was perceived as an efficiency-driver. It was the technological revolution in the 1960s, that the first automated storage and retrieval systems were developed, which were the basis for future warehouse management systems (WMS).

The birth of online commerce in the 1990s led to exponential growth in demand for fulfilment centres, and increasingly sophisticated order processing technology.

The current state of 3PL services

Ecommerce fulfilment, and related search terms, are typed into Google tens of thousands of times each month, and according to Google Trends, this has been an upward trajectory:

The global 3PL fulfilment market size was valued at $97 billion in 2022, and a compound annual growth rate (CAGR) of 13.9% is anticipated until 2030. If we take 1.139 and times it by the power of 8 (years), this is equivalent to 283% growth over this time period.

Source: 'E-Commerce Fulfillment Services Market' report by Straits Research

How 3PLs work for eCommerce retailers

Working with a 3PL is a multi-stage process, that begins with shopping around to find the right one. This involves assessing their warehouse locations, their clients’ feedback, eCommerce platform integrations, carrier partners, pricing, and metrics such as picking accuracy. A recent study found 77% of negative reviews are related to post-checkout, i.e. order processing, delivery, returns and customer service, so something else to consider is to check 3PLs’ clients’ customer feedback, from consumers.

Once you have found a your ideal 3PL, this is where negotiation begins, and agreeing on KPIs (key performance indicators), along with OKRs (objectives and key results), to ensure you are aligned in terms of your performance expectations. Once your contract is signed, this is where client onboarding begins.

During onboarding, you will be introduced to your account manager, and the 3PL’s technical support team will integrate their WMS with your sales channel(s), for example Shopify, eBay and Amazon. Your product range will be mapped out against available shipping options, taking into consideration dimensions, weight, insurance and customs requirements.

Your supplier(s) will now ship to the fulfilment centre(s), at which point the ‘goods-in’ team break down your pallets and containers, and distribute the products to picking locations. At point of sale, a picking note is generated, which is an instruction for the picking team to collect your order, ready for packing and shipping.

At the packing station, orders will be arranged by courier provider, ready for collection. The 3PL will have established relationships with domestic and international courier providers, and will receive collections on a daily basis.

The later the carrier can collect from the 3PL warehouse, the later the retailer can offer services such as ‘next-day delivery’, later into the evening. Complete Strength, a Shopify merchant, has been able to acquire new customers, thanks to Zendbox’s industry-leading 10pm order cut-off time:

Founder, Rob Whitfield added: “The majority of our orders will come in of an evening. When we had an earlier cut-off time, we missed out on sales. Now we’ve got a later cut-off time with Zendbox, we get less abandoned carts. We have also noticed customers are shopping with us simply because of the later cut-off time.”

Once your orders are with the carriers (e.g. DHL, Parcelforce, DPD, FedEx), your customers will receive tracking notifications, and depending on carrier service selection, in-flight delivery options, such as the option to create a ‘leave safe’ location, live courier van location tracking, and timed delivery windows. After receipt of goods, consumers may want to make a customer service query, and in some instances, return their goods. Some 3PLs can support with these processes too.

The different types of logistics outsourcing (and insourcing)

3PLs are the most common type of logistics outsourcing, and vary in terms of integrations, product types, client locations, and other variables such as customisation, scalability, storage preferences (e.g. dry or frozen), and some fulfilment houses specialise in garment cleaning and ironing, ready for resale. But there are other types, ranging from first, to fifth-party logistics.

1PL vs 2PL vs 3PL vs 4PL vs 5PL:

  • 1PL is when a company delivers its own goods to the customer. Some major high street retailers have their own delivery vehicles, such as Currys, who offer both delivery and installation via their own network.
  • 2PL refers to parcel, packet and mail courier firms, such as DHL, Parcelforce, UPS and Royal Mail.
  • 3PLs are fulfilment centres, who work with shipping carriers.
  • 4PLs are firms that look after the outsourcing of fulfilment on your behalf, such as annually reviewing pricing and negotiating contracts.
  • Specialising in deeper supply chain support, 5PLs look after the outsourcing of multiple fulfilment centres, and even elements such as manufacturing.

Is Amazon a 3PL?

Amazon is a complex beast. While it began as, and remains to be, an online marketplace, Amazon now offers FBA services, which stands for ‘Fulfilment by Amazon’. While 3PL firms such as Zendbox are agnostic in terms of the eCommerce platforms and marketplaces their clients sell on, FBA is purely for the Amazon sales channel. While FBA gives you direct access to Amazon’s Prime subscribers, their fees are usually higher, and they offer minimal order customisation options. Many eCommerce retailers will work with a 3PL, and also Amazon FBA, to maximise sales opportunities, however this means placing stock in more than one geographic location.

The benefits of third-party logistics

Working with a 3PL means you will usually only pay for what you use. Rather than having to invest in building or renting your own warehouse operations, hire and train staff, develop your own systems and processes, along with utilising an outsourced WMS, and barcode scanning technology, a 3PL can take care of these things on your behalf.

An eCommerce fulfilment specialist can also help you scale, and thanks to the collaborative buying power, a 3PL can give you access to ‘pooled volume’ discounted shipping rates. A best-in-class fulfilment provider will also take the time to really get to know your business and help you grow, by introducing technology partners that complement the 3PL’s services. For example, a Shopify retailer might require a new website, or be struggling to generate a return on investment from paid channels. While a 3PL won’t be able to directly help with this, they might have a partner agency contact who can.

Inventory analysis tools, such as the above, can be offered by third-party logistics providers, to give retailers full visibility of order processing carried out by the fulfilment centre. This type of technology, such as Zendportal, can help predict when to, or not to order new stock, to minimise understocking and overstocking.

The drawbacks of 3PLs

Working with a 3PL means you will need to give up an element of control. There is usually a bedding-in period, which is why it makes sense to run some test orders before switching fully to a new fulfilment warehouse, to identify potential gaps in service quality. Some 3PLs will work with smaller businesses shipping from 10-30 items per day, whereas others will demand a minimum of 300 daily orders. It might not be cost-effective for a startup business to utilise a 3PL, because they have very little data to predict order volumes. For startups who are experiencing strong and persistent growth, such as going viral on TikTok, a 3PL will usually be more willing to help.

The future of logistics outsourcing

The future of third-party logistics will be determined by economic factors such as land availability, retail decision-makers’, and consumers’ expectations. Online shoppers will increasingly expect fast and free shipping, speedy returns, and greater visibility of their delivery progress. Consumers will demand personalisation, but not at the cost of sustainability, placing pressure on firms to offer diverse packaging options, whilst minimising wastage. 3PLs will be expected to pivot, and evolve to meet new trends, such as second-hand products, and slow living, in which consumers can also opt for eco-friendly delivery and packaging options, where delivery speed is less important. Ultimately an online retailer must be able to offer their current, and future ideal customers, what they demand, on their terms, profitably, and getting logistics outsourcing right is key to achieving this goal.

Gilson Pereira
Head of Customer Experience at Zendbox

Resilient and forward-thinking, Gilson is responsible for leading the strategy, planning and execution of our customer experience (CX) goals, liaising with department heads to ensure every team at Zendbox works cohesively to provide our clients a positive and seamless experience across all touchpoints.

Further Reading

ready to take control?

Automate your ecommerce fulfilment with Zendbox.

Get started


Simple pricing based on volume of orders. No hidden fees.
Get in touch

Have any

We’ve been doing this for a long time. We might have your answer here.