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Guide to third-party logistics (3PL) pricing

This guide provides an overview of the third-party logistics (3PL) costs that you need to know – so that you can get a good understanding of 3PL pricing.

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Inbound shipping and receiving costs Storage and warehousing costs Handling costs Shipping costs Aftercare costs Understanding the total cost of ownership
7 min to read
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Introduction

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.

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Inbound shipping and receiving costs

The first type of 3PL costs that we will cover is inbound shipping and receiving costs. As the name suggests, these costs relate to:

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Shipping

The shipping of your inventory from your warehouse or manufacturing facility to your 3PL’s warehouses or fulfillment centers. The customer is responsible for bearing the cost of inbound shipping of goods, and partnering with a 3PL provider that has a global network of fulfillment centers – like Amazon Multi-Channel Fulfillment (MCF) – can help minimize the distance and costs of your inbound shipping.

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Receiving

The process of receiving of your inventory at the 3PL’s warehouse or fulfillment center. Most 3PLs charge a fee – either a flat rate or an hourly rate – for the labor required to unload your goods.

Storage and warehousing costs

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:

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Pricing models
Many 3PLs require you to enter into long-term storage contracts, where you have to commit to using a certain amount of dedicated space in their fulfillment center or warehouse and maintaining a minimum level of throughput for a certain length of time. Some 3PLs – like MCF – offer simple, pay-as-you-go pricing for storage, giving you greater flexibility and control over how much storage space you are using at any given time. This means that you are only paying for the space occupied by your inventory on the shelf in the warehouse, and not locked into a long-term contract that forces you to pay for storage space that you may potentially need in the future.
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Inventory positioning
Most 3PLs will strive to strategically position your inventory to different fulfillment centers or warehouses in their network (so it’s as close as possible to your customer base) – and will charge you to transport and cross-dock your goods. Partnering with a 3PL that has an established, expansive network – like MCF, which has over 200 fulfillment centers around the world – will enable you to pursue a distributed inventory strategy that can reduce the cost of moving your goods (and also shorten order delivery times for customers).
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Hazardous materials
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.

Handling costs

Another important type of 3PL costs is handling costs, which encompasses charges for:

Picking

Picking products from your available inventory in various storage locations throughout the 3PL’s fulfillment center or warehouse once an order has been placed. Typically, 3PLs charge an hourly or per item rate based how many items they have to pick and the amount of labor involved, although some 3PLs – like MCF – bundle picking fees together with other fulfillment fees or charge a flat rate.

Packing

Packing your orders for shipment in boxes or packaging. The cost of packing – which can be charged separately or bundled together with other fulfillment fees – can vary widely based on:

  • The types of materials used in packing such as shrink wrapping, corrugated cardboard boxes, and Tyvek bags.

  • The value-added services provided including kitting, labeling, using branded or eco-friendly packaging, inserting marketing materials, and quality control and assurance.

  • Whether any order consolidation – when different orders, that are all going to the same address, are packed together on one pallet – is required. 3PLs often charge extra for order consolidation, and this can end up being quite an expensive process.
warehouse worker in an aisle scanning products

Shipping costs

The next type of 3PL costs that we will discuss is shipping costs, which can vary depending on a number of different factors including:

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Carrier
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.
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Distance
Shipping costs for order fulfillment generally increase as the distance between the 3PL’s fulfillment center and the end customer’s doorstep increases – and many 3PLs using a shipping zone-based system to calculate rates.

As aforementioned, partnering with a 3PL provider like MCF that has a global network of fulfillment centers can dramatically reduce the distance, times, and costs of your shipments by enabling you to proactively place your inventory as close as possible to your customer base.

Also, if you want to ship your goods internationally, you will need to make sure that your 3PL has a fulfillment center footprint in those countries you want to ship to or offers international export and shipping services. The latter option will be much more expensive as it often involves substantial export charges.
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Dimensional weight
Along with the distance from shipment origin to destination, dimensional weight is a key factor utilized by most major carriers to determine shipping costs.

Dimensional weight (a pricing technique that takes into account a package’s dimensions – and not only its weight) can be calculated using this formula: (length × width × height) / dimensional factor. Your shipping fee will be based on the dimensional weight or the actual weight of your package, whichever is greater.

Each carrier or 3PL may have their own dimensional factor that they use to calculate dimensional weight, and in some instances it’s possible to negotiate with 3PLs and carriers to get them to adjust their dimensional factor in a way that advantageous for you as the customer.
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Shipping speed
3PLs charge different rates depending on the order delivery speed selected by the customer - with 1, 2, or 3 day shipping being the most common options for ecommerce fulfillment. Generally speaking, the faster the shipping speed, the higher the shipping cost – although some 3PLs offer volume discounts for multi-unit orders.

If you plan on offering expedited shipping (1 or 2-day) to your customers, you should check to confirm that the 3PLs you are considering can actually provide that service and evaluate how much they charge for it. Also, you should determine if the 3PLs you are evaluating would sometimes “hold” your packages to consolidate them with a carrier or take extra time to prepare your shipments – which could have an impact on shipping speeds.
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Hidden costs
Many 3PLs (and the shipping carriers they engage) impose substantial surcharges for various factors including shipping hazmat and oversized items, using different modes of transport such as air (instead of land or sea), and shipping to international destinations. When evaluating different 3PL providers’ pricing schemes, make sure you have clear understanding of these hidden costs – so you don’t end up getting a shock when you see them appearing as line items on your 3PL invoice.

Aftercare costs

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.

warehouse worker scanning products

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.


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