Cutting logistics costs – which, according to a recent report by Bloomberg
, have risen 16% over the past year in the US – is a top priority for companies in today’s business environment. And many companies turn to third-party logistics (3PL)
providers to help them do exactly that.
Indeed, one of the primary reasons that ecommerce businesses and other companies outsource their warehousing, inventory management, and order fulfillment to 3PLs is to reduce logistics costs. A 3PL can help you decrease inventory, storage, shipping, and other costs across your end-to-end supply chain by improving the efficiency of your logistics operations
But 3PL services, of course, come at a cost – and if you want to achieve cost savings across your logistics operations, it’s imperative that you choose a cost-effective 3PL.
The problem is that – with all the different 3PL charges and fees – it can be hard to get a handle on the true cost of partnering with a 3PL. In fact, many companies that are evaluating prospective 3PLs or engaging with 3PLs do not have a good grasp of 3PL pricing.
In this guide, we’ll give you a breakdown of five of the most common 3PL costs that you need to know – so that you can get a firm understanding of 3PL pricing.
The first type of 3PL costs that we will cover is inbound shipping and receiving
costs. As the name suggests, these costs relate to:
3PLs charge customers to store their goods at the 3PL's fulfillment centers or warehouses, and the storage and warehousing fees you have to pay are typically based on the volume of space (cubic feet or meters) that your inventory occupies.
That sounds simple, but when it comes to calculating 3PL storage and warehousing costs, there are a few important nuances to consider:
If your inventory contains any components – such as lithium batteries – that are classified as hazardous materials or hazmat, a 3PL may hit you with a hefty surcharge to store and ship these items.
Another important type of 3PL costs is handling costs, which encompasses charges for:
The next type of 3PL costs that we will discuss is shipping costs, which can vary depending on a number of different factors including:
In most cases, 3PLs rely on one or more carriers to handle their shipping services – although some 3PLs, like MCF, are carriers themselves with their own shipping resources and capabilities. In order for you as a customer to ensure you are getting the best shipping rates, you should carefully compare:
○ The rates offered by the 3PL’s carriers.
○ The rates offered by the 3PL itself (if it is a carrier).
○ The rates you negotiated directly with carriers, which – especially if you are a large enterprise – may be better than the other types of rates listed above.
The last type of 3PL costs that you need to know about is aftercare costs, which relate to post-delivery support services that end customers receive.
Some 3PLs will handle reverse logistics, which involves processing product returns or exchanges by customers. These 3PLs can manage the end-to-end returns process, from communicating with customers, to shipping and receiving unwanted products at the fulfillment center or warehouse, to sorting and evaluating the returned items to determine if they should be restocked, recycled, or disposed of.
If you want your 3PL to oversee your reverse logistics operations, you will have to pay a variety of shipping and processing fees, which can really add up.
Of course, the best way to minimize these aftercare costs is to partner with a 3PL provider – like MCF – that has a track record of delivering on-time and avoiding delivery mistakes such as product damage or mix-ups.
Understanding the total cost of ownership
Cost is a critical factor for you to consider when evaluating prospective 3PLs or assessing your business relationship with your current 3PL
. Ideally, you want to partner with the 3PL that provides the highest quality services at the lowest possible price – so that you can capitalize on opportunities for cost optimization and improved efficiency across your logistics operations.
In this guide, we’ve highlighted the five most common types of 3PL costs that you need to be aware of, but it’s important to note that there are other costs – such as account management and software costs – that may come into play.
It’s imperative for you, as the customer, to have a firm grasp of your 3PL’s pricing scheme, the various costs you are incurring, and – most importantly – your total cost of ownership
for 3PL services.
Developing this holistic understanding of 3PL pricing and costs is the key to ensuring that your 3PL partnership is a source of competitive advantage and long-term growth for your business.