1)Introduction to Advantages and Disadvantages of 3PL in ECommerce Shipping
Anyone familiar with the world of eCommerce shipping knows how important third party logistics or 3PL is to the success of an online business. The advantages of 3PL are very commonly listed everywhere. From picking, packaging and delivery, third party logistics providers take care of the entire order fulfillment process for eCommerce businesses.
However, there are a few disadvantages of third-party logistics that online stores should also keep in mind when looking to hire a 3PL to manage shipping operations. The massive growth of eCommerce in India and worldwide has led to the mushrooming of numerous 3PLs. Which third-party logistics provider or 3PL is best for your e-commerce business will only come after a thorough understanding of how 3PL works in eCommerce shipping and logistics.
In this article, we will take an extensive look at Third-Party Logistics (3PL) advantages and disadvantages. But first, let's find out what a 3PL is and what its role is in the shipping logistics industry.
2)What is Third Party Logistics or 3PL?
In eCommerce logistics, 3PL or third party logistics is the service provided by third party couriers and logistics software companies to eCommerce stores to help with their shipping and order delivery. Third-party logistics takes care of order procurement, storage, warehousing, stock management, labelling, picking, packing and finally delivering the order to the end customer. By choosing to work with a 3PL, online companies relegate the responsibility of shipping and order fulfilment on 3PL providers. Research shows, working alongside 3PLs helps eCommerce businesses to scale up much faster.
Most eCommerce companies start outsourcing shipping and logistics to third party logistics services because of the advantages they provide. As an online store grows and starts receiving a larger number of orders every month, it looks for a suitable 3PL to provide a smooth and streamlined shipping and delivery experience to its customers.
A third-party logistics provider can store items in its warehouses, manage stocks and replenish them when necessary and finally deliver the item when a customer places an order. Apart from these shipping services, a 3PL also provides customised packaging, picking, kitting, bundling, customs clearance, etc., for eCommerce retailers.
3)What are The Top 10 Advantages of 3PL or Third Party Logistics?
The advantages of 3PL are immense. This is the reason why so many eCommerce companies all over the world choose to work with a third-party logistics provider. Some eCommerce companies while starting out decide to manage shipping in-house.
This is a viable option for a retailer when order volumes are low and logistics manageable. But as orders multiply over time, choosing to work with a 3PL is a good idea. Let's find out all the advantages that working with a third party logistics partner can provide eCommerce businesses.
3.1)Lower Shipping Prices
One of the biggest advantages of 3PL is the cost-effectiveness it provides. Third party logistics providers work with many different companies and for that reason, they can offer individual eCommerce companies with much cheaper and attractive shipping prices.
Managing logistics in-house is an extremely costly investment. 3PL (3rd Party Logistics) companies on the other hand can make use of their economy of scale to provide beneficial shipping services at much lower rates.
Since 3PLs specialise in shipping services, they operate a large number of delivery fleets that can carry orders from one place to the other in a time-sensitive manner. Another advantage of third party logistics is that they have several warehouses scattered all over the country.
Therefore, they are much better equipped to deliver orders faster to customers. Since Amazon normalised one-day delivery to customers, eCommerce third party logistics providers have started offering lightning fast deliveries to customers even at the shortest notice.
Warehousing solutions is another major advantage offered by third-party logistic providers. For warehouse management, 3PL companies procure the entire stock of eCommerce companies and store it in several of their warehouses.
As soon as a customer places an order, third party logistic providers rush to fulfil the order from the nearest warehouse of the customer. In this way, 3PLs not only take on a load of managing inventory but also make faster deliveries to customers. Young eCommerce companies strapped for space should definitely consider using warehouse management services offered by 3PLs.
Another benefit provided by third party logistics is inventory management. Ecommerce companies can rely on 3PLs to manage their inventory, keep stock of which items are available, replenish stock as and when required and also update inventory in case of product returns or exchanges.
In inventory management, all inventory is categorised in SKUs and stored in racks and bins in a warehouse. Most 3PLs will use a WMS (Warehouse Management Software) or OMS (Order Management Software) to automatically update inventory and display fresh stock on the eCommerce company's website or virtual marketplaces.
3.5)Real-Time Order Tracking
A good order tracking feature is essential to maintaining transparency and communication between ecommerce companies and their customers. Today's consumers expect to know where their order is at all times.
To make this possible, third party logistics companies provide a self-serve order tracking page that can be easily accessed by customers by entering their Order Id or Tracking Number. A lot of 3PLs can even send order update notifications to customers on their Email and phones. By updating your customers about their order's whereabouts ecommerce companies gain trust and brand loyalty.
3.6)Numerous Payment Gateways
Third-party logistics providers can be super advantageous for the number of payment gateways they offer to customers. Lack of payment options in the checkout page is a big contributor to cart abandonment.
3PLs are equipped to handle cash payments like Cash on Delivery (COD), bank transfers, UPI, Credit/Debit cards and even Pay on Delivery options. Providing so many payment options to customers means fewer chances of cart abandonment and greater customer satisfaction at the time of purchase.
3.7)More Delivery Options
Amazon Prime's Same Day Delivery has made eCommerce third-party logistics companies take notice. Since customers want faster deliveries than ever before, 3PLs have started offering Same day, Next Day, 2-Hour, and hyperlocal delivery services to them. By tying up with a 3PL, eCommerce companies can reap these benefits provided by third party logistics. The faster the delivery the happier the customer. And everybody knows, happy customers are an asset to any business.
3.8)Increased Customer Satisfaction
Customers like a hassle-free delivery. Third party logistics can provide that with their superior delivery fleets, customised packaging, timely order status updates, and a safe transit of orders without damage or breakage. As eCommerce companies begin to grow out of their initial stages and scale up, they will want to enhance their customer satisfaction rate.
A higher customer retention rate means more and more customers return to your store, you receive fewer product returns and exchange requests and build a community of your people. The advantage of 3PL is that they can help online stores reach that phase much faster without having to shell out extra money to hire workforce and rent bigger warehouses.
3.9)Customised Shipping Services
Customisation and personalisation is the key to reaching your customers' hearts. Third party logistic company's advantage is that they can provide a lot of customised shipping services for B2B and B2C sectors.
3PLs can also print customised shipping labels and create personalised packaging for special orders. Customised shipping services naturally come with added costs. Therefore, be sure to speak to your 3PL provider about extra charges beforehand.
3.10)Insurance and Other Benefits
If your eCommerce store deals in jewellery, precious stones, designer watches or any other valuable goods, you must prepare an insurance plan for shipping. The biggest advantage of third party logistics is that they have insurance plans to cover for any losses you might suffer in the case of any shipping mishap.
Insurance plans act as fail safe in the case of any unforeseen event. Make sure the insurance plan you choose does not make you the sole bearer of the loss. It's important to select a plan that puts the onus on both the parties.
4)What are the Top 9 Disadvantages of 3PL (Third Party Logistics)?
The list above shows the many ways in which 3PLs can become an indispensable part of an eCommerce shipping operation. The advantage provided by third party logistics is so much that eCommerce stores often forget to look at the disadvantages that come with using third party logistics.
Although we agree that the disadvantages of 3PL are nothing compared to their advantage, it's still worth something to look into. Directly contracting with carriers has a lot of fringe benefits that can help you push and shove your way to the front of the pack. However, juggling multiple courier partners comes with its own range of obstacles that have to be considered. Below, is the list of 3PL (Third Party Logistics) disadvantages that every Ecommerce company should look into before hiring one for their business.
4.1) Difficulty Tracking Multi-Carrier Orders
This is one of the major difficulties that you’ll encounter when you’re directly tying up with multiple courier partners. Being able to track your orders is a supremely important part of the e-commerce process. Without being able to efficiently keep an eye on the movement and status of orders placed on a wide-scale level, things can get pretty chaotic! This can be a disadvantage of 3PL that many eCommerce companies face.
4.2) Separate Allocation of Orders
Another disadvantage of 3PL is that once an order is placed, allocating and assigning a courier partner to fulfill that order doesn’t seem like a big task. However, if you’re tied up with 5 courier partners, each may be assigned anywhere between 20 to 50 orders per day, depending on their serviceability. You’ll be entirely dependent on customers and the courier partners to inform you of any delivery exceptions.
4.3) Independent Communications
Each carrier has to be reached out to separately in case of any issues with an order. While the speed of communication may now be unhindered by a middleman, it is an inconvenient and time-consuming process to reach out to each carrier independently to deal with individual order issues.
Without making use of API integrations to reach out to them in a more streamlined manner, miscommunications can also occur. This again is the disadvantage of using third party logistics for shipping operations.
4.4) Carrier Performances Monitored Separately
There’s a major consequence to orders being tracked and managed with each carrier independently. The performance of each courier partner also has to be analyzed separately based entirely on inputs provided by each carrier. And whatever metrics and analytics you have resources for.
4.5) Separate Carrier Platforms
The biggest barrier to monitoring carrier performance is that each courier partner maintains separate websites or backends for tracking the status of orders. This means that the data required to monitor each carrier’s performance has to be individually pulled by you from each carrier’s respective website. This can be another disadvantage of using third party logistics companies.
4.6) Different SLA Terms
Given the wide range of pin codes that you need to service and the variety of specialized services you’ll make use of, each carrier demands a separate focus from you. This goes doubly when it comes to creating SLA terms. Absolute clarity of your operations and necessities is required at this point. Having different SLA terms can be a disadvantage of working with third-party logistics partners.
While some terms may be standard, the advantages of working with different carriers can only be enjoyed when you negotiate the best terms. This means knowing what you want from each of them, be it access to remote areas, better product safety in transit, or discounted rates. A lack of preparation can result in more hidden costs and less utilization of necessary services.
4.7) Different Terminology Used by Carriers
When it comes to relationships, be them with your customers, your courier partners or your significant other, communication is key. All it takes is one misspoken word to completely ruin your dinner plans. Similarly, the entire delivery process for each order can be shaken with just a few misprints or alternate phrasing.
4.8) No Standardised Shipping Labels or Packaging
Customized shipping labels and packaging are a great way to raise brand loyalty and keep customers thinking about you. There’s a reason why McDonald’s puts its iconic giant yellow M everywhere it gets the opportunity, on every to-go bag and every burger wrapper.
A uniform process and template for shipping labels also reduce the likelihood of any possible confusion during transit. However, most of the top courier companies maintain their own shipping labels so each customer receives a shipment with a different label, making them less likely to identify with your brand.
4.9) No Standardised Customer Communications
There’s nothing more exciting for an online shopper than receiving a message that says their order is on the way. However, these messages are usually drafted by carriers who tend to use their own phrasing and language. The same customer may end up placing an initial order that’s delivered by Carrier A and then a second-order delivered by Carrier B.
This may be because he/she/they requested express delivery or some service which is only offered by Carrier B to that location. Carrier A may say an order is first “dispatched”, then “in-transit”, then finally “on the way” to the customer. Carrier B, however, first says when the order has been “picked up”, after which it is “on the way”, and then finally “out for delivery”.
The result is a very confusing barrage of messages that leaves the customer wondering what each message means and where their order actually is.
As is clear from the lists above, the advantages provided by 3PL far outweigh its disadvantages. However, it's crucial that eCommerce companies enter an agreement with third-party logistics providers knowing full well what their advantages and disadvantages are.
Ecommerce stores can reach newer markets, engage with new customers, provide hassle-free shipping and much more with the help of 3PLs. On the other hand, differences in business values and loss of control can deter eCommerce companies from working with third party logistics. Whether you choose to work with a 3PL is entirely dependent on your business's needs and resources. We hope this article helps you understand all the advantages and disadvantages that come with hiring a third-party logistics provider.