What is 3PL?
Third-Party Logistics (3PL) involves outsourcing your eCommerce logistics processes, such as warehousing, inventory management, and order fulfilment. By working with a fulfilment service provider, you can focus more on growing your business while they handle the logistics.
Key Benefits of 3PL:
- Expertise: 3PL providers have the experience and infrastructure to manage logistics efficiently.
- Cost Savings: Outsourcing can reduce overhead costs related to warehousing and staffing.
- Scalability: Easily scale your logistics operations up or down based on demand.
- Focus on Core Business: Free up time and resources to focus on product development, marketing, and customer service.
Key Factors Influencing 3PL Costs
Several factors can influence the cost of 3PL services, including:
- Storage Fees: These are based on the volume of products stored in the warehouse. Fees can vary depending on the size of the items and the duration they are stored. For instance, larger items or those stored long-term may incur higher fees.
- Pick and Pack Fees: Charges for selecting items from storage and packing them for shipment. These fees are usually calculated per order or per item. The complexity of the order (e.g., single-item orders versus multi-item orders) can also affect the cost.
- Shipping Costs: The cost to ship items to customers, often varying by carrier and shipping method (standard, expedited, etc.). Shipping costs are influenced by factors such as package weight, dimensions, destination, and delivery speed.
- Receiving Fees: Costs associated with receiving and stocking your inventory. This includes unloading deliveries, inspecting goods, and updating inventory records. Fees can be based on the number of units received or the time spent processing the delivery.
- Additional Services: Any extra services like custom packaging or kitting (assembling products into kits). These value-added services often come with additional charges.
3PL Costs Breakdown
Below is a comparison table showing typical 3PL costs from various providers:
| Cost Component | Low-End Estimate | High-End Estimate | Description |
| Storage Fees | £8 per pallet | £40 per pallet | Monthly charge per pallet space used. |
| Pick and Pack Fees | £0.80 per order | £4 per order | Fee per order for picking and packing items. |
| Shipping Costs | Varies by carrier | Varies by carrier | Dependent on weight, dimensions, and destination. |
| Receiving Fees | £20 per hour | £40 per hour | Charge for receiving and stocking inventory. |
| Custom Packaging | £0.40 per unit | £4 per unit | Costs for special packaging requests. |
| Kitting Services | £0.24 per unit | £1.60 per unit | Fees for assembling products or bundles. |
| Return Processing | £1.60 per return | £8 per return | Handling costs for returned items. |
Storage Fees: Storage fees can vary significantly based on the type of storage required (e.g., ambient, refrigerated). Some providers offer volume discounts for larger storage needs.
Pick and Pack Fees: These fees often depend on the order complexity. Multi-item orders or orders requiring special handling can incur higher pick and pack fees.
Shipping Costs: Shipping costs are influenced by the carrier chosen, shipping speed, and delivery location. Many 3PL providers offer discounted shipping rates due to bulk shipping agreements with carriers.
Receiving Fees: Receiving fees may include additional charges for services like quality inspections, labelling, and inventory audits.
Custom Packaging: Costs for custom packaging can vary based on the materials used and the complexity of the packaging design. This is especially relevant for brands that prioritise unique unboxing experiences.
Kitting Services: Kitting services involve assembling multiple products into a single package. This can include promotional bundles, subscription boxes, or pre-assembled kits.
Return Processing: Returns processing involves inspecting returned items, restocking them, and handling any necessary refurbishing or disposal.
Additional Fees to Consider
Beyond the basic costs, there are additional fees that might apply:
- Account Setup Fees: One-time fees for setting up your account. These can cover the initial setup of your inventory management system and integration with your eCommerce platform.
- Minimum Monthly Fees: Some providers charge a minimum fee regardless of order volume. This ensures that the 3PL provider covers their costs even during low order periods.
- Long-Term Storage Fees: Higher fees for items stored over an extended period. This is to encourage turnover and efficient use of warehouse space.
- Expedited Handling Fees: Extra charges for rush orders or special handling. This includes same-day processing or handling fragile items.
Example of Additional Fees:
| Additional Fee | Typical Cost | Description |
| Account Setup Fees | £100 – £500 | Initial setup and integration of your inventory system. |
| Minimum Monthly Fees | £50 – £200 | Monthly minimum charge to ensure provider cost coverage. |
| Long-Term Storage Fees | £2 – £10 per pallet | Additional charge for items stored longer than 6 months. |
| Expedited Handling Fees | £5 – £20 per order | Charges for rush processing or special handling. |
How to Choose the Right 3PL Provider
When selecting a 3PL provider, consider the following:
- Scalability: Ensure the provider can grow with your business. Ask about their capacity to handle increased order volumes during peak seasons.
- Technology: Look for robust inventory management systems and integration with your eCommerce platform. Real-time tracking and reporting can provide valuable insights into your operations.
- Reputation: Check reviews and references from other businesses. A provider with a strong track record is more likely to deliver reliable service.
- Cost Transparency: Make sure all fees are clearly outlined with no hidden charges. Request a detailed breakdown of costs and ask about any potential additional fees.
- Customer Service: Reliable customer support is crucial for smooth operations. Ensure the provider offers accessible and responsive support channels.
Questions to Ask Potential 3PL Providers:
- What technology do you use for inventory management and order tracking?
- Can you provide references from similar businesses?
- Are there any hidden fees we should be aware of?
- How do you handle peak season demand and scalability?
- What is your process for handling customer returns?
Conclusion
Understanding the costs associated with 3PL services is essential for eCommerce success.
By breaking down the key cost components and comparing different providers, you can make an informed decision that aligns with your business needs and budget.
Partnering with the right 3PL provider can streamline your operations, enhance customer satisfaction, and support your business growth.
FAQs
How do 3PL providers calculate storage fees?
Storage fees are typically calculated based on the amount of space your inventory occupies in the warehouse, measured in cubic feet or pallet positions, and the duration of storage.
What are pick and pack fees in order fulfilment?
Pick and pack fees cover the labour costs involved in selecting items from inventory and packing them for shipment. These fees are usually charged per order and per item.
Why do shipping costs vary between 3PL providers?
Shipping costs vary due to differences in shipping methods, destinations, package weights, and dimensions. Each 3PL provider may have different partnerships and rates with shipping carriers.
What additional services can a 3PL provider offer?
Additional services can include custom packaging, kitting, subscription box assembly, return processing, and special handling for fragile items.
How can I reduce my order fulfilment costs?
You can reduce costs by optimising inventory levels, negotiating better rates with 3PL providers, choosing warehouses closer to your customer base, and minimising the complexity of your fulfilment process.
What should I consider when choosing a 3PL provider?
Consider your business’s specific needs, the total cost and value provided, service level agreements, and the provider’s reputation and reliability.
