What do third party logistics companies do?

According to research experts Gartner, over 80 per cent of professionals suggested that outsourcing logistics to third party companies was important and they would intend to increase their budget for doing this beyond solely fulfilment and warehousing. Likewise, 42 per cent of the same professionals claimed they would want to invest in third-party logistics if service providers can offer an all-encompassing logistics management solution.

Third-party logistics companies can save the time and money of e-commerce companies as well as improve the efficiency and effectiveness of their logistics process and every touchpoint of the supply chain. As such, businesses that aren’t fully aware of third party logistics companies and the benefits they offer could be missing out on the opportunity to optimise the service they provide, as well as significant savings. 

In this blog, we explain exactly what third party logistics companies are, what they do and the reasons why many businesses choose to outsource logistics.

What is a third-party logistics company?

Simply put, a third-party logistics company is an external business that manages specific parts, or the entirety, of a business’ transportation operations. More specifically, areas a third-party logistics company may take control of include inventory, material handling, packaging, storage, unitisation and warehousing. 

A concept that became more popular in the 1970s and 80s, outsourcing to third-party companies is a common process for many businesses globally. Since the start of the 21st century, outsourcing to third-party logistics companies has continued to develop due to the growth of e-commerce and a broader range of logistics services becoming available.

Many businesses decide to put their faith in third-party logistics companies as it means delegating certain tasks and duties to an experienced, knowledgeable and functioning company. Providing a trustworthy and reliable company is chosen, outsourcing logistics can pose multiple benefits and lead to improved efficiency across the supply chain.

Why do companies use third-party logistics?

As previously mentioned, businesses often outsource their logistical responsibilities to external companies as it can offer several benefits. In an effort to offer more insight, we’ve listed some of the common perks to outsourcing to third-party logistics companies below:

Cost –

When businesses carry out logistics processes independently, the price can run high. A third-party logistics company, however, will usually perform each task in bulk, lowering the cost. Likewise, the price of logistics will be less as they will possess a number of contacts, understand the industry, the value of certain tasks and processes and have the ability to negotiate with service providers across multiple stages of the supply chain.

Efficiency –

Not only can using a third-party logistics company save time through internal members of staff being able to work on other tasks, but someone with experience in logistics is also more likely to complete tasks quicker and more efficiently. Additionally, the use of technology by third-party logistics companies often means arranging shipments and filling out paperwork are significantly less time-consuming.

Performance monitoring –

For many businesses, it can be difficult to assess the effectiveness of a supply chain alongside other ongoing tasks. However, as third party logistics companies are experts in identifying errors, gaps, inconsistencies and shortcomings in the supply chain, they can offer methods of optimising every stage, potentially benefiting the running of the business.

Resources –

Working with a third-party logistics company means that a qualified and experienced professional can handle logistics matters rather than internal members of staff. However, it also allows the business to gain access to the knowledge and resources of the third-party logistics company. Depending on the relationship between the business and the third-party logistics company, it may even be possible to access the company’s contacts, warehouse space and achieve priority over other businesses.

Technology –

Software programmes that are designed to manage logistical tasks can be expensive, and yet, it may be necessary to invest in this type of technology if a business has chosen to manage logistics internally. However, as a third party logistics company will use some form of the transportation management system, a business can acquire important data, reports and analysis from the company they’ve outsourced to and use this information to improve their supply chain.