Is 3PL Logistics Right for You? Here’s What Small Businesses Need to Know.

Struggling to keep up with logistics and shipping demands? For small businesses needing to streamline and scale their operations, third party logistics (3PL) can be an attractive strategy. Outsourcing to a 3PL provider also frees teams from activities like fulfillment, so they can dedicate their energy to growing the business. 

3PL logistics is an outsourcing arrangement where a business engages a specialized provider to manage multiple, integrated logistics and supply chain functions. These functions include inventory management, order fulfillment, shipping and transportation, and reverse logistics.  

3PL logistics exists on a spectrum of logistics models, each of which comes with a different level of support and control.  

The most popular logistics models are following: 

3PL logistics solves pain points shared by businesses of all sizes, including lack of time and specialist expertise. For example, by leveraging resources and expert support from 3PL providers, businesses can efficiently manage functions like inventory management and fulfillment at scale. 

3PL logistics also help businesses avoid the high fixed costs of owning and managing warehouses and allows them to pay only for the storage and resources they need. This is especially beneficial for small businesses seeking to scale their operations without significant capital investment. 

Asia Pacific anchors the global 3PL market according to Mordor Intelligence research. In 2024, the region contributes 41.3% of the market’s USD 1.15 Trillion in estimated global revenue and is advancing at a compound annual growth rate of 6% through 2030.  

As companies shift manufacturing to places such as Vietnam, Thailand, and Indonesia, Asia Pacific is forecasted to become a critical hub for industrial production and distribution. This, combined with a growing e-commerce industry, will further propel the growth of 3PL logistics services in the region.

A 3PL provider takes on the tactical execution of a business’s supply chain, providing four key services: 

• Inventory management including the receipt and storage of goods as well as tracking and managing inventory levels. This could involve integration with the business’ sales channels to automate stock level updates and trigger reorders.  

• Order fulfillment including picking the correct items from stock, securely packing orders, and preparing them for shipment. 

• Shipping and transportation including selecting the right carrier network and shipping method to ensure timely, cost-effective, and reliable delivery to the end customer. Businesses may have the option to request the 3PL provider uses their own preferred carrier and their own account. Otherwise, 3PL providers will use their own.  

• Reverse logistics including processing returns and sending faulty items back to the manufacturer.

Asia Pacific offers a diverse landscape of 3PL providers, including specialists in warehousing and fulfillment and those focused on particular industries or needs like cold storage. 

Businesses may strategically partner with regional experts to manage inventory closer to their manufacturing sites or end customers. For example, an Australian business with manufacturing in China and the majority of its customers across Southeast Asia may seek a 3PL warehouse or fulfillment center in Singapore to serve as a regional hub. By storing products closer to its customers, the business can potentially reduce shipping costs and time-in-transit from the warehouse to the customer. 

Partnering with a 3PL provider offers several benefits for small businesses, including more time to focus on their core operations. 

Outsourcing logistics to a 3PL provider can reduce costs by eliminating the need to rent or purchase an entire warehouse and pay all related labor costs. Instead, businesses can pay only for the storage space, labor, and services they use. 

3PL logistics can also lower per-unit shipping costs as a result of negotiated volume discounts with carriers. 

Engaging a 3PL provider also enables businesses to leverage their industry expertise to optimize their logistics operations, rather than spending time and potentially money to become an expert themselves. 

3PL logistics gives businesses some flexibility to scale up or scale down logistics capacity in response to market demand or seasonal peaks. Some 3PL providers also offer access to global networks, which can be attractive for businesses seeking warehousing and fulfillment options closer to their customers or manufacturers in new markets. 

Handing over complex logistics operations such as inventory tracking and reverse logistics to a 3PL provider allows internal teams to dedicate their time and energy to growth-orientated activities like product development and marketing.

The journey a product takes through the 3PL logistics process involves many steps, but with the right provider and effective communication, the overall process should feel seamless. 

Outsourcing any core operations can come with a certain level of risk. Understanding these challenges can help businesses determine whether 3PL logistics is the right strategy for them.

One of the most significant risks of adopting a 3PL logistics strategy is becoming overly dependent on a single provider. If the partner experiences an operational issue such as a failure with their WMS, it can halt fulfillment. Dependence on a 3PL provider also translates into a lack of control over the end-to-end customer experience. 

The performance of a 3PL logistics partner can directly impact brand reputation. Risks include lack of due diligence and quality control when receiving products from manufacturers and slower-than-expected fulfillment. Without effective oversight, businesses may be unaware that something has gone wrong until a customer complains.

One way to mitigate the risk of slow or delayed delivery is to ensure the 3PL provider uses a carrier such as FedEx with a reliable and extensive network that offers the capacity and speed required to meet customer demand. FedEx also offers integration with WMS systems like ShipHero to enable end-to-end visibility of shipments. 

Although adopting 3PL logistics can be part of a cost-saving strategy, businesses must scrutinize provider agreements to avoid potential hidden fees. These unexpected costs may include peak season surcharges, fees for specialized handling, or minimum monthly spend requirements that some small businesses may find difficult to meet.

Many businesses struggle to know when to make the leap and engage a 3PL provider. However, if the business is spending too much time on logistics and not enough time on growth-orientated activities, it is probably time to consider 3PL logistics. 

•       Inventory is taking control of your premises and your time 
•       Warehousing and shipping costs are hurting your margins
•       Logistics has become a bottleneck to growth
•       Slow fulfillment is impacting customer satisfaction
•       Inability to scale and meet peaks in demand

One of the top considerations for any business making the leap to 3PL logistics is the question of cost vs. control. Outsourcing may offer substantial cost savings and flexibility by converting fixed expenses into variable ones. However, this must be weighed against the business’s need for direct control. For instance, a small business offering a highly bespoke unboxing experience that includes surprise samples and gifts may want to maintain greater control over picking and packing to preserve that differentiated customer experience and brand identity.

Larger enterprises with complex global supply chains may find significant efficiencies working with 3PL providers and have no issues meeting minimum spending requirements. However, small businesses may need to consider whether their order volume is sufficient to justify the move to 3PL logistics or whether it is more cost-effective to manage functions like fulfillment in-house. 

Businesses should choose a 3PL provider whose network and capabilities matches their strategic goals. When assessing potential partners, it is important to evaluate whether the 3PL provider’s footprint aligns with current and future business needs. Reliability is critical and should be backed by a proven track record of accurate and on-time fulfillment. Service flexibility is also important for businesses needing to scale logistics up and down based on season or demand. 

Comparing 3PL logistics and warehousing companies involves careful assessment of several factors beyond cost and location. These factors include—but are not limited to—the following: 

✔  Service and pricing transparency including a clear breakdown of charges in contracts

✔  Service Level Agreements (SLAs) including performance targets for picking accuracy and order dispatch time 

✔  Integration between the provider’s WMS and business’s e-commerce and finance systems to enable seamless workflow and transparency

✔  Ancillary services such as custom packaging or hazardous goods handling 

✔  Insurance and liability for inventory loss or damage 

The technology used by 3PL providers often plays an essential role in driving efficient fulfillment and providing complete transparency of inventory and orders. A 3PL provider’s technology stack should ideally include a WMS that can be easily integrated with key e-commerce and finance platforms. Alternatively, the provider should provide access to a user-friendly portal or dashboard where a business can monitor inventory levels, order status, and shipping location instantly and in real-time.

Some 3PL providers may also offer analytics that provide insights into key performance indicators such as inventory accuracy, fulfillment speed, and cost per unit. 

Many logistics providers have taken action in recent years to reduce their carbon footprint and help customers meet their own sustainability goals. FedEx is one of these that is laying the foundation for smarter, more sustainable supply chains. 

Within 3PL logistics, there is a focus on energy efficient warehousing and the use of environmentally friendly packaging. 3PL providers are also using data and AI to improve practices like demand forecasting and reduce environmental waste. 

Cross-border commerce continues to fuel demand for 3PL logistics and is a major driver for growth in the market which is expected to surpass USD 4 trillion by 2034. The reasons for this are simple; as businesses go global, they often need infrastructure and expertise to help them scale. This includes expertise to manage international shipping and customs clearance.

Managing logistics in-house gives a business greater control over fulfillment and the end-to-end customer experience but demands significant capital and time. 

The fundamental difference between dropshipping and 3PL logistics is that when outsourcing to a 3PL provider, the business still owns their own inventory. 

The key difference between 3PL logistics and 4PL logistics is the former focuses on operational execution and the latter on strategic management. 

3PL logistics can be a key growth enabler for small businesses in Asia Pacific with benefits including: 

• Less time spent managing logistics and more time to focus on driving business growth

• Improved scalability, including ability to ramp up for peak seasons 

• Reduced capital expenditure and lower costs due to efficiencies of scale