Understanding the Differences Between a 3PL and a Freight Forwarder

Understanding the Differences Between a 3PL and a Freight Forwarder

Category:3PL

There are many terms in logistics that can be confused for one another if you are new and unfamiliar to the industry and its terminology. For example, third-party logistics (3PL) and freight forwarding are two terms that may seem to be interchangeable, but once you learn more about the services that are offered by each one it’s easy to see that they are very different. A big distinction between the two is in handling imported and exported goods, which is a key component of the supply chain for many product companies. To know the differences between a 3PL and a freight forwarder is helpful to make the best choices to suit your company’s needs.

3PL Services

An established 3PL specializes in overseeing  some or all of your supply chain and logistics operations. A 3PL will take on picking, packing, inventory management, order management and processing, reporting, shipping and distribution, as well as return logistics. Other common tasks that companies outsource to 3PL providers include: domestic transport, international transport, warehousing, customer brokerage, and freight forwarding.

Unless you have the in-house resources to manage all the services that 3PLs offer, chances are that your company can benefit from hiring a 3PL provider to outsource your logistics and order fulfillment. When you hire a company to handle all of your supply chain needs, and their many benefits that come along with it. You will probably notice increased order accuracy and find you have more time to focus on growing other parts of your business. In addition, you will have the advantage of a low upfront capital commitment since you do not need to spec and build out your entire logistical supply chain. Above all, when you hire a trusted 3PL provider, you will have more time to focus on important tasks such as your business development, sales, and marketing. While most 3PL providers can be full-service, you also have the option to take advantage of a partial segment of the services they offer, while excluding the ones that your business does not need. And many 3PLs provide the flexibility to scale up or down depending on changes in product demand or, seasonality that commonly occur, or long-term business growth.

The need for 3PL providers continues to grow as the logistics industry becomes more and more complex. It has become difficult for small and even medium sized companies to keep up with the consumer demands of same-day delivery and constant product iterations and updates. It no longer makes sense to monitor all of the latest developments in the industry and  figure them out on your own. It’s become increasingly impossible to determine what the exact needs your company are based on an industry with so much flux. 3PL providers not only free up valuable business time, but they can offer expert advice and assistance with many logistics decisions to help you ensure your are managing your product company with the most efficient processes.  

“By moving our inventory to Louisville, we got a much higher proportion of our freight to a lower cost option. We were able to see significant cost savings because of Louisville’s excellent location.” Christian Gormsen, CEO at Eargo

Christian Gormsen CEO, Eargo

Freight Forwarding Services

Managing the transportation of goods domestically and internationally requires knowing many various shipping regulations, tariffs, and other factors that change often. If you have a product company with an international manufacturer or global customer base, utilizing a freight forwarder will be a good option for your company to navigate import and export compliance.

In general, freight forwarding is the coordination and shipping of products from one destination to another utilizing either single or multiple carriers. A freight forwarding company acts as an intermediary between a shipper and various other transportation services; they are not the actual freight movers. They can provide of a full range of services from managing and tracking land based transportation, negotiating rates for freight shipping, booking cargo space, preparing the necessary shipping and export documents, and even filing insurance claims should they be needed.

One of the main reasons that companies choose to use freight forwarders instead of working directly with carriers,  is that freight forwarders offer rates that companies may not be able to get on their own. They use their relationships with carriers—including air freighters, trucking companies, rail freighters, and ocean liners—to negotiate the best possible price to move their client’s products. They also have highly specialized knowledge of the regulations, transportation costs, documentation requirements, and banking practices that can make the movement of your products simpler and more efficient. Regardless of the size of your products, freight forwarders are able to handle all the required export responsibilities and take the onus off your company.

Comparing 3PL Services to Freight Forwarders

The distinction between 3PL providers and freight forwarders can sometimes become blurred because they often work in tandem. Many 3PLs will partner with a freight forwarder to help coordinate moving freight, and some freight forwarders will recommend trusted 3PLs to their clients if those clients need more in depth inventory support.

Freight forwarders are differentiated by providing  a broker-type service specifically to move products from point A to B.  They are the intermediary who specialize in coordinating everything from booking cargo space to filing insurance claims, but usually do nothing beyond this scope. This means that if you hire a freight forwarder, you are still responsible for organizing warehouse space, picking and packing, inventory management, and many other processes.

3PL providers are different in that they are full-service, end-to-end supply chain support. They can manage and operate your entire supply chain from receiving your products to ensuring they get to your end-customers or retailers. This includes supply chain elements like warehouse storage, picking and packing, shipping, tracking and many more. A 3PL will provide the same benefits as a freight forwarder, while also having access to more services which can offer flexibility for a product company to decide what kind of support best serves them.

Bottom Line

When making the decision between a 3PL and a freight forwarder, the most important thing to do is evaluate the specific needs of your business. Once you have a better understanding of the differences and what services each one offers, you can figure out which service would be the most cost effective and make the most sense for your company.

If you are looking guidance deciding if a 3PL or freight forwarder is the best fit for your company, we would love to hear from you. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.

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