3PL vs Contract Logistics: The 5 Key Differences You NEED to Know 2024

July 9, 2024 What is the difference between a 3pl and a logistrics provider

Ever felt lost in a maze of logistics jargon? 

Freight forwarders, 3PLs, contract logistics providers, and the list goes on! 

Choosing the right partner can feel like navigating a minefield, especially when terms are often used interchangeably.

Well!! You are at the right place, then; just don’t stop your reading midway. 

This article is your roadmap to clarity. We understand the confusion surrounding 3PL and contract logistics and the age-old question: are they even different?

Forget dry explanations; we’ll bust the myths, unveil the facts, and showcase the unique strengths of each service. 

We’ll also guide you on when to choose one over the other, empowering you to make informed decisions for your business.

So, ditch the confusion and join us as we unlock the secrets of streamlined logistics!

Quick Guide

  1. Role of Logistics in Supply Chain
  2. Contract logistics and third-party logistics (3PL)
  3. E-commerce Logistics
  4. E-commerce Contracts Logistics
  5. Contract Logistics Vs 3pl
  6. Myths and Facts
  • Contract Logistics is the same as 3PL. 
  • Services offered in contract logistics and 3PLs are different.
  • 3PL is an advanced and diversified service. 
  • E-commerce business aiming for speedy growth, should opt for 3PL services.
  • Looking for flexibility, transparency, and tech-savvy services for seamless e-commerce stocking and shipping deliverables, 3PL should be your choice. 
  • Contract Logistics is for small businesses (who receive fewer than 250 orders in a week)
  • Third-party logistics provides you with all contract logistics services, while contract logistics provides only specific services (those that are mentioned in your contract).
  • Contract logistics strengthens your e-commerce supply chain just as 3PL does.
  1. Choosing the best 3PL or contract logistics for your e-commerce business
  2. Final Thoughts

Role of Logistics in Supply Chain

Within supply chain management, logistics plays a critical role in overseeing the movement, storage, and documentation of goods and services throughout their journey to the customer.

Effective logistics orchestrate inventory tracking. 

From picking the best transport to strategically placing storage at each supply chain step, it’s a well-oiled machine.

Effective logistics management requires meticulous planning and coordination to ensure goods are delivered to the right place, at the right time, and within budget. 

By controlling and monitoring the people and resources required for storage and transportation, it is possible to ensure the smooth flow of goods and materials.

In essence, logistics acts as the backbone of a successful supply chain, ensuring the efficient and reliable movement of goods.

Within the vast realm of supply chain management, various tools exist to streamline logistics processes.
Third-party logistics (3PL) and contract logistics are two significant processes and the most confusing options among the multiple logistics processes. 

Contract logistics and third-party Logistics

The term “contract logistics” encompasses a range of services focused on specific aspects of the supply chain. Often, these services center around delivery management, with freight forwarding being a prime example.

Freight forwarders specialize in the movement of cargo, handling tasks such as customs clearance, documentation completion, and shipping itself.

If your e-commerce business requires assistance with a particular segment within a supply chain while you manage the remaining aspects, then a contract logistics is the right provider.

However, for businesses seeking to outsource a larger portion of their fulfillment and shipping operations, a different solution is necessary to enter the world of 3PL.

In contrast to contract logistics providers, 3PL companies offer a comprehensive suite of services encompassing a significantly larger portion of your supply chain.

Imagine working with a third-party logistics as your one-stop shop for all things fulfillment and shipping. They handle a wide range of tasks, including inventory management, order management, communication and service, and return management.

Cost savings are a major advantage of both 3PL and contract logistics, making them essential components of any e-commerce supply chain. While 3PLs can potentially offer greater cost savings due to their flexibility, both options can significantly reduce overall logistics expenses.

eCommerce Logistics

Efficient logistics are the backbone of any successful e-commerce business. This means meticulously managing inventory to avoid stockouts during peak seasons, establishing reliable domestic and international shipping systems, and utilizing appropriate warehousing facilities. 

Ultimately, the goal is to ensure smooth and dependable distribution channels that guarantee timely deliveries and happy customers.

However, today’s consumers demand both speed and affordability, forcing e-commerce businesses to adapt. Optimizing logistics for customer satisfaction and improved delivery involves understanding the evolving business landscape. 

A crucial first step is choosing between 3PL and contract logistics services. Each offers unique advantages, and selecting the right option depends on your specific needs and growth trajectory.

E-commerce Contract Logistics

The e-commerce boom has led to the growth of contract logistics firms. These companies help online retailers with tasks like warehousing, inventory management, packing, and shipping. 

While major companies like Amazon have their own logistics networks, smaller e-commerce businesses often find contract logistics more affordable. 

A study by McKinsey & Co. even suggests that Amazon’s logistics arm would be one of the world’s top five third-party logistics providers if it operated independently. This shows how important contract logistics is for the success of e-commerce.

Contract Logistics Vs 3pl

In this section, your most significant question about 3PL and contract logistics will be answered, that is “what is the difference between a 3PL and a logistrics provider?”. 

Let’s clarify this in a different way and not just by stating the differentiating factors of the two. 

We present you with the “myths and facts” of contract logistics and 3pl, and justify each with proper reasoning and the services they offer. 

Myths and Facts

StatementsMythFact
Contract Logistics is the same as 3PL.NoYes
Different services are offered.NoYes
3PL is an advanced and diversified service than contract logistics.NoYes
Choose 3PL for speedy success.NoYes
Choose 3PL for flexible, tech-powered fulfillmentNoYes
Consider contract logistics for easy shipping, if weekly order < 250 ordersNoYes
3PL includes all contract logistics services.NoYes
Contract logistics includes a few of the 3PL services.NoYes
  • Contract Logistics is the same as 3PL. 

If you have read the above information, you can clearly state that this statement is a myth.
Let’s understand this through a simple example:

Imagine your business as a car. 

Contract logistics helps plan the route, while a 3PL is your full-service pit crew. 

They handle everything from storage (garage) and packing (readying the car) to delivery (driving) and keeping track of parts (inventory). 

In short, a 3PL offers a wider range of services than just specific ones like contract logistics.

  • Services offered in contract logistics and 3PLs are different.

If you have understood the above explanation, then you know that this statement is a fact. 

3PL offers inventory management, delivery management, warehouse management, shipment tracking, order fulfillment, packaging,  prep, etc.

On the contrary, contract logistics provides only delivery management services. 

3PL is like a bucket full of services, while contract logistics deliver only the contracted services.

3pl vs contract logistics
  • 3PL is an advanced and diversified service. 

Think of 3PL providers as all-rounders, handling a broad spectrum of logistics tasks. Contract logistics specialists, on the other hand, excel in specific areas, offering a more focused service.

Tech-savvy 3PLs, like AMZ Prep, are your secret weapon! 

Partnering with a 3PL that uses advanced technology allows you to seamlessly integrate their systems with your existing platform. 

Imagine connecting your online store on Amazon or Walmart with their tools to easily manage multi-channel sales, orders, and even returns, all in one place. 

This can significantly boost your efficiency and streamline your entire e-commerce operation.

This can significantly boost your efficiency and streamline your entire e-commerce operation.

Thus, the above statement is a fact. 

  • E-commerce businesses aiming for speedy growth should opt for 3PL services.

The perfect logistics partner isn’t a one-size-fits-all solution. 

This emphasizes that the best choice depends on your specific business needs.
The e-commerce business’s support system is its supply chain, and 3PL is the chain of activities from warehouse management to final delivery, aligned with your business’s growth. 

3PLs go beyond internal streamlining with WMS. They provide merchants with real-time visibility into their fulfillment process.

This means you can see where your inventory is at each stage, from receiving to shipping, allowing for better decision-making and improved customer communication.

This cost-effective and transparent logistics process provides you with diverse growth opportunities. 

Thus, the above statement is a fact. 

  • Looking for flexibility, transparency, and tech-savvy services for seamless e-commerce stocking and shipping deliverables, 3PL should be your choice. 

3PLs use warehouse management systems (WMS) differently than contract logistics. They give merchants a window into what’s happening with their stuff. 

You can see what’s on the move, what’s in stock, and what’s getting packed up. Basically, you know exactly where everything is at all times.

AMZ Prep is among those 3PL providers where you can have a tour of the warehouses, to be filled with your goods. 

This statement is a fact. 

  • Contract Logistics is for small ecommerce businesses (who receive fewer than 250 orders in a week)

Less than 250 orders a week? 

You can probably handle most of the fulfillment yourself. But shipping can be tricky, especially internationally. 

That’s where contract logistics come in! 

They can handle the shipping for you, taking a complex task off your plate.

Just remember, even if you outsource shipping, you’ll still be busy marketing and fulfilling orders. Make sure you have the resources to handle everything before you jump in.
Thus, small businesses prefer contract logistics; this is a fact. 

  • Third-party logistics provides you with all contract logistics services, while contract logistics provides only specific services (those that are mentioned in your contract).

Third-Party logistics is an umbrella term.

3pl logistics comparison with contract logistics 2024

It includes all logistic services such as inventory management, warehousing, deliverables, shipping, returns, etc. 

On the other hand, contract logistics could include any one or two services from the 3PL list. As transportation and delivery services require high costs and accurate management, these services are generally given as contracts to outside logistics partners. 

Contract logistics could include any service from the supply chain list to be served as a contract service. 

The above statement is a fact.

To be  Noted

What is contract with a 3PL?

Within the realm of supply chain management, a common practice involves outsourcing logistics operations to a qualified third-party provider through a formal contract. This approach, known as 3PL Contract Logistics, encompasses a broad spectrum of services, including warehousing, distribution, inventory control, and delivery.

A key element of 3PL contract logistics is the establishment of a structured agreement outlining the responsibilities and obligations of both parties in managing various supply chain components. This strategic partnership allows a company to focus on its core competencies while leveraging the expertise and resources of the 3PL provider.

  • Contract logistics strengthens your e-commerce supply chain just as 3PL does. 

As stated above, 3PL is an umbrella term, while contract logistics includes some of the services that come under 3PL; thus, the latter partially strengthens your e-commerce supply chain. 

The e-commerce businesses looking for some specific supply chain management services, such as shipping, inventory management, or others, could opt for contract logistics. 

This results in cost-effective decisions. 

Suppose your transportation management is weak; taking up a contract logistics service could strengthen your flow of goods at a reasonable price.

3PL supports you as a third party, strengthening your supply chain from inventory management to reverse logistics.  

Contract logistics strengthens your supply chain partially, while a 3PL strengthens your entire supply chain. 

Thus, the above statement is partially true, or it could be stated as a myth. 

What is the future of contract logistics?

The contract logistics market is booming due to several factors. First, companies are increasingly demanding integrated services that encompass the entire supply chain. Second, data management is becoming crucial for efficient logistics operations, and companies are seeking providers that can handle this effectively.

Finally, businesses are looking for flexible solutions that can adapt to their changing needs. As a result, contract logistics is becoming the preferred option for many companies, offering them the specific process management or comprehensive services they require.
Currently, Western Europe dominates the market, with Germany being a major player. However, Central and Eastern Europe are expected to experience significant growth in the coming years. In the United States, there has been a surge in warehouse leasing by logistics companies, driven by the growing demand for e-commerce and same-day delivery services. This trend is pushing retailers to outsource more of their logistics operations.
Within North America, Canada boasts the fastest-growing e-commerce market, while the US remains the largest and continues to experience steady growth. Mexico presents a promising market with relatively low e-commerce user penetration, suggesting strong potential for growth in the next five years.

Choosing the best 3PL or contract logistics for your e-commerce business

It’s not contract logistics vs. 3PL, but your business preference!!

Choosing between 3PL and contract logistics isn’t a one-size-fits-all situation. 

Here are some key factors to consider for choosing your ideal match for 3PL or contract logistics:

1. Know your needs

  • Services: What do you need (storage, packing, shipping)?
  • Speed: What are your delivery deadlines?
  • Volume: How much are you shipping?

2. Research Providers

  • Industry Expertise: Do they have experience in your field?
  • Services Offered: Do they match your needs?

3. Compare & choose:

  • Get Quotes: Compare pricing and services from multiple companies.

4. Read the Fine Print

  • Understand all terms and costs before signing any contracts.

By taking these steps, you’ll ensure your e-commerce logistics run smoothly and efficiently, at the right price!

Questions to be asked before choosing between 3PL and contract logistics.

  • Do you want a contract service?Where do you lack in logistics? 
  • What are your shipping deadlines? 
  • What is your shipping volume, and what is your expected shipping volume?
  • Do you aim to expand globally?
  • Are you struggling to focus on other business segments due to supply chain management?
  • Do you want to compete with the bigger players in the e-commerce industry?
  • Want to reduce logistics costs in the long run?

Final Thoughts

3PL companies are experts in order fulfillment, handling everything from storage and packing to shipping and returns. This frees you up to concentrate on what you do best – running your business and marketing your products.

By outsourcing these logistics headaches entirely and not in contract for some specific supply chain services, you gain access to the infrastructure, technology, and expertise needed to compete in today’s fast-paced world. 

This translates to faster, more affordable shipping for your customers, which ultimately boosts your bottom line.

Think about it, a 3PL is a specialist with one core function, while you’re juggling everything else. As your business scales and your order volume grows, handling in-house fulfillment becomes increasingly difficult.

Ultimately, the decision on contract logistics or a 3PL depends on your specific needs. Consider the factors mentioned earlier: how much time you can dedicate to logistics, your growth plans, and the services you require.

Do your research! 

Business Program
Services
Program Features
Live Support24*7
LocationsUS and Canada
Nationwide
delivery services
Available
Warehouse ToursAMZ Prep is among the
few in the industry serving  this
Inventory Management Analytics Know your inventory
data at regular intervals
Continuous KPI ReportingNumber of shipments
On-time deliveryActive claims reporting
Customized analytics

Ditch the competition in 2024! 

Partner with AMZ Prep for your 3PL needs. We offer a full range of services to keep your orders flowing smoothly and quickly. 

Fulfillment made simple: that’s the AMZ Prep way.

4 thoughts on “3PL vs Contract Logistics: The 5 Key Differences You NEED to Know 2024

  1. 3pl and contract logistics are often misunderstood but the myths and facts section justified the time spent on reading. Good one!

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