Third Party Logistics In Supply Chain Management Is Exploding And You Should Know

Third Party Logistics (3PL or TPL in short) is becoming increasingly important in Supply Chain Management and Logistics. In this article, I will explain why that is, so that you can integrate it in your own e-commerce. As well, I will explain how the market is closing.

What is 3PL?

Very concisely, 3PL is the outsourcing of most to all of a company’s distribution and fulfillment to a third party. Usually, the third party receives all the products from the previous level in the supply chain and it will hold the product until it is sold and shipped to the customer. Some of the companies even process returns. This company is legally responsible for fulfilling the activities requires by the e-commerce company. 3PL is common in both B2B and B2C market.

In 2008, the term 3PL was legislated as: “A person who solely receives, holds, or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.”

For starting e-commerce companies all the way up to big retail firms, it can be a pain in the ass to arrange a smooth fulfillment service that is always on time and makes little to no mistakes. Especially when you’re a start-up and you have other activities besides running your firm, this might be a great solution. Involving a 3PL into your business saves you a lot of time and trouble. As well, partnering with a big 3PL name in the market can boost you’re business as it shows trustworthiness. More about brand recognition later on.

The evolve of 3PL

In the past 10 years, with the boom of the internet and e-commerce, more and more retail shifted from offline to online markets and as a result the 3PL market exploded. It is estimated that over 96% of the Fortune 100 is using a third party logistics partner for their business, and approximately 86% of the Fortune 500 does.

As the market exploded in the last decade, thousands of companies rose from the ground and became big. Especially in the last 24 months, the market has seen extraordinary growth. In combination with macroeconomic trends, the increasing complexity of supply chains led to huge demand growths for 3PLs. In 2017, the market grew by 10,5% to $184,3 billion US. Researchers expect to outgrow the $200 billion US revenue target by next year.

The market of 3PLs is closing at the top

As the market grew so fast, the competitive environment was characterized by mergers and acquisitions in the last couple of years. For example, today’s number 2 most recognized brand in the 3PL world XPO was actually not even in the top 20 companies a few years ago. Due to a merger with Menlo (nr 7 at the time) the company got a huge brand boost. Today, the top 3 most recognized companies in the market are DHL Supply Chain & Global Forwarding, XPO Logistics and C.H. Robinson. The last named company has steadily grown to the position they’re in now.

In this world, brand recognition is everything. Because managers are overloaded with existing companies, new-born merger companies and start-ups, they have no idea which company to choose and therefore they go for the company they can recall in their mind. The 3PLs have noticed this fact and are therefore trying to acquire as many companies as they can so they can grow further. This is the reason why the market is closing at the top, since there are only a few really big 3PLs and they are buying everything they can to stay there, making the entry for new companies harder and harder.

If you want to stay up-to-date on 3PL and the changing environment of SCM and Logistics, make sure you check my blog frequently!