The Costs of Using a Third Party Logistics (3PL) Warehouse

As businesses grow, they often reach a point where it becomes necessary to outsource some or all of their logistics operations to a third-party logistics (3PL) provider. While there are many benefits to using a 3PL, such as increased efficiency and reduced labor costs, there are also some significant costs that should be taken into account. In this article, we will explore the costs associated with using a 3PL.

Inbound Costs   

This is the cost for the warehouse to inbound your stock and put it away to a location. The cost depends on who your product arrives at the warehouse. Some warehouses will simply charge a per hour rate to inbound your stock, while others will charge by the way it comes in: container, pallet, carton or unit.

Where possible, it is always less expensive to bring in a single SKU pallet or carton, than one containing multiple SKUs. The most expensive way to bring in stock is if there are multiple SKUs in a carton as that requires the warehouse to open up each carton and count each unit.

Storage Costs

While Amazon charge on a cubic metre basis for storage, most 3PLs will charge based on the space you use by pallet, shelf or pick face. While tis may seem risky if they spread your product out, it is in the 3PLs interest to minimise the space you take up so they can fit more retailers in.

Pick/Pack Costs

Most 3PLs will charge a base fee per order and then a pick fee per unit in that order. Some 3PLs wil also charge for each different SKU in an order.

Packaging Costs

Some 3PLs will charge to label a carton or satchel while others won't. You can either bring your own packaging or use theirs. If you bring your own, the 3PL will usually charge to store it. If you use theirs, they will often just charge on a cost+ basis.

Most 3PLs will allow you to add a flyer at no or a very small additional cost.

Kitting Only if requested)

If you require the 3PL to make up a special pack or bundle, this is called kitting. Most 3PLs ill start by charging on a per hour basis for this work until they have a good idea on average how long it takes. They may then offer to charge on a per bundle basis.

Integration Costs

When a company first starts working with a 3PL, there may be some integration costs to consider. For example, the company may need to purchase new software or hardware to integrate with the 3PL's systems. There may also be costs associated with training employees on the new systems and processes.

Freight Carrier Costs

Transportation costs are another significant cost to consider when using a 3PL. The 3PL will typically handle transportation for the company, which can include shipping, freight forwarding, and customs clearance. The cost of transportation will depend on the distance goods need to travel, the mode of transportation used, and the weight and volume of the goods.

Opportunity Costs

One cost that is often overlooked when using a 3PL is the opportunity cost of not handling logistics in-house. By outsourcing logistics, a company is able to focus on its core competencies and free up resources that can be used elsewhere in the business. However, there is a potential cost associated with not having direct control over logistics, such as the ability to quickly respond to changes in customer demand or market conditions.

Risk Costs

Finally, there are risk costs associated with using a 3PL. These can include the risk of damage or loss of goods during transportation, the risk of theft or fraud, and the risk of reputational damage if the 3PL fails to meet customer expectations. While these risks can be mitigated through proper due diligence and risk management practices, they are still a cost that should be taken into account.

While at first glance, it can seem there are a lot of costs to outsourcing your fulfilment, many retailers find once they have received quotes that it is more cost effective for their business than their current fulfilment approach.

If you'd like to see whether a 3PL is right for your business, please feel free to complete the briefing questions and we will provide you with proposals from a range of reliable 3PLs.