What is third-party logistics and how does it work?

 Two people in a warehouse with inventory on the shelves.

If you’re looking to expand your reach, third-party logistics (3PL) can help accelerate your ecommerce growth. Here’s how.

Scaling your business in the world of ecommerce can be a great way to reach more customers. But with growth, can come a host of challenges as you balance keeping up with rising demand and shrinking storage space. If you’ve encountered this, or if you recently opened an online store and don’t want to manage inventory and distribution, a third-party logistics (3PL) service could help.

With the help of a 3PL service, you can overcome obstacles like running out of storage space or having to take multiple shipments to UPS or FedEx each day, which can be costly and time-consuming.

Services like Supply Chain by Amazon, Fulfillment by Amazon (FBA), and Multichannel Fulfillment (MCF) can help you expand and accelerate growth without having to worry about fulfilment. This guide will cover how 3PL services like these can help.

Pro Tip
Use Fulfillment by Amazon
Try Fulfillment by Amazon (FBA) as a way to outsource the entire fulfillment process—from storing inventory to packing and shipping orders. We can also manage returns and provide customer service for the products you enroll in FBA. Tap into Amazon’s global fulfillment network, offer two-day shipping to Prime customers, and more.

What is third-party logistics (3PL)?

Third-party logistics companies (or 3PL) can help ecommerce businesses scale by offering a range of services to streamline retail processes, such as inventory management, logistics, and return and exchange management. Other services include:

  • Warehouse storage
  • Shipping coordination
  • Order fulfillment
  • Retail distribution

3PL simplifies the scaling of your ecommerce operations. You pay a fee, and the 3PL handles stock and distribution, freeing you up to focus on your business.

What are three types of 3PL providers?

There are many different types of 3PL providers, but they can be divided into three broad categories:

  1. Transportation: These 3PLs transport goods from one location to another. They might handle deliveries to customers without offering options for returns and exchanges. Examples include shipping carriers, bike couriers, and freight companies.
  2. Space management: These 3PLs provide options for storage like warehouses and fulfillment centers. They might also offer distribution services, like managing inventory and restocking returns.
  3. Full-service: These 3PLs manage end-to-end logistics. This could involve product creation (as in the case of print-on-demand providers) and distribution. Some 3PLs also provide supply chain management options like analytics, information technology solutions, and customer service.

How does a 3PL work?

Third-party logistics companies offer different services and fulfillment processes, so the process will vary, depending on which 3PL you choose.

Here’s an example of how the average 3PL service operates:

  • You send inventory to the 3PL from your storage space or directly from the manufacturer.
  • The 3PL receives and organizes each SKU in its warehouse.
  • Once a customer places an order, you either manually submit it to the 3PL or they receive it automatically via software.
  • A worker at the 3PL picks the ordered items and packs them in boxes for shipment.
  • The 3PL sends the shipments through a local shipping service provider (e.g., DHL, UPS, FedEx, USPS).

When should you use a 3PL?

Here are several signs 3PL could be right for you:

  • You’re selling more items than you can store or fulfill and would like to scale to keep up with demand.
  • You want to focus on growing your business vs. overseeing the operations (e.g., inventory management, processing orders, and fulfillment).
  • Storing inventory yourself is becoming too expensive or a hassle to deal with.
  • You have the financial resources to pay for 3PL services.
  • You want to expand your reach using a 3PL’s network of locations (while reducing shipping costs).

Although 3PLs don’t always require a minimum of units sold per month, check to make sure, especially if there’s a risk sales could increase beyond your ability to manage fulfillment. For some, the threshold may be 50 units per month, while others can manage up to 100 orders per month.

Factors to consider when choosing a 3PL provider

Working with a 3PL provider can be a big step for your ecommerce business,so it’s critical to cover all the bases before signing a contract. Here are some questions to ask to determine if a 3PL provider is the right one for you.

Are full truckload and less than truckload shipping and receiving available?

Full truckload (FTL) and less than truckload (LTL) are two options for sellers to ship goods. The FTL option is for when you need to ship large orders (e.g., 12 pallets of goods). Otherwise, if you have a small shipment, LTL could be a better option because it’ll add those items to other pallets, so you’re not paying for a full truckload.

The Amazon Partnered Carrier Program offers discounted shipping for sending FBA inventory to our fulfillment network.

FBA Carrier Program video Thumbnail
Amazon FBA Partnered Carrier Program
Amazon Partnered Carrier Program is a discounted shipping service offered by Amazon to Amazon Sellers. In this video, learn about Amazon’s Partnered Carrier program truckload service and its benefits, and get a step-by-step overview of how to use the Amazon Partnered Carrier Program for LTL shipments (less than truckload).

How does inventory management work?

When you work with a 3PL service, you’re usually responsible for managing inventory. However, some providers have analytics tools to track inventory levels to prevent stock-outs and overstocks.

For example, FBA has a dashboard for inventory management. It provides data about current stock levels and expiration dates to avoid spoilage. The system even alerts you when you have low stock levels.

With sell-through rate data provided, you can also better understand which products sell fastest, so you know which goods to reorder frequently or in higher quantities.

Learn more about inventory management

What fulfillment services are included?

Third-party logistics providers will pick, pack, and ship goods on your behalf. Some 3PL providers might also offer additional services.

For example, some 3PL providers offer custom packaging and sender labels. This can be valuable if you’re building a brand and want to use a unique design or logo you developed. It adds a personal touch to products, making your brand memorable to customers.

Does it offer kitting and assembly options?

Kitting is placing multiple SKUs into a single package. This is useful if you sell bundles, such as multiple baby outfits or accessories, grouped together in one box.

Creating bundles can increase revenue, reduce shipping costs, and expedite delivery because you ship fewer boxes per order. For example, FBA allows brand owners to offer Virtual Bundles made up of two to five complementary ASINs that are purchased together from a single detail page.

Assembly is another service 3PLs offer to personalize packaging. This is common in the fashion and beauty industry where presentation matters. For example, you might have a special box that requires items placed in a specific order, or a basket with a bow wrapped around the top.

A 3PL with kitting and assembly can do this process for you before shipping products to customers.

Do you get access to advanced data analytics?

Some 3PLs offer data analytics to help manage inventory. While this is useful for preventing imbalanced stock levels, it doesn’t assist with future planning.

Select a third-party logistics company with advanced data to analyze other aspects of sales. For instance, Amazon Brand Analytics shows:

  • Who’s buying products (demographics)
  • How many customers make repeat purchases
  • Which search terms customers use to find products
  • Popular items customers buy in addition to buying items you offer
  • Top three products shoppers buy instead of yours
  • Which products customers compare to your offerings

With this information, you can make informed decisions about which products to keep, drop, and stock up.

Brand Analytics Demographics Lofi Ui Illustration

Does it include reverse logistics?

Reverse logistics involves accepting and restocking returns from customers. It’s a service offered by some 3PL providers for an extra fee, so check if it’s included or has a charge per return.

To prevent financial loss, some sellers deduct a restocking fee from customers’ refunds when they return an item. It’s also useful for eco-friendly brands if customers want to return containers for recycling or reuse.

Where are the warehouse locations?

If you plan to sell goods to customers across the nation or globe, then choose a 3PL service with warehouses in strategic areas.

Some providers have warehouses in a specific region or in multiple countries and continents. The more warehouse locations it has, the better it is for your sales potential.

How helpful is customer support?

Whether it’s your first or hundredth time working with a 3PL, choose one with excellent customer service. Not all third-party logistics providers are the same, which could lead to hiccups, especially when starting out.

For example, some companies require you to use your own freight forwarders, which means you’re responsible for tracking shipments and communicating with carriers.

Other providers may not provide the level of service you expect. For instance, not responding quickly to customer emails or phone calls.

When selecting a provider, consider the level of support required to ensure satisfactory order fulfillment for customers.

Does it provide distributed inventory options?

Distributed inventory allows you to store inventory at several warehouse locations. You can choose to store inventory at a single location or split it between multiple locations.

The goal is to get products as close to customer locations as possible to reduce shipping costs and improve delivery speeds.

When a customer places an order, they receive it from a fulfillment center closest to them. If you want to get shipments to customers in as few days as possible, then opt for a 3PL provider with warehouses in areas closest to customers.

Amazon has fulfillment centers in locations across America, Europe, the UK, Canada, Italy, France, and other countries to meet growing customer demand.

Female customer service rep

How do they handle returns?

When a customer returns a product, will the 3PL provider fulfill the request? Some third-party logistics companies offer complete return services like:

  • Checking for packaging and item damage
  • Restocking returns in like-new condition with no damage
  • Creating new SKUs for slightly damaged or used products to sell at a discount
  • Discarding food or damaged products and calculating the loss

Provide the 3PL with clear instructions on how to handle returns. For example, you may require certain goods to be tossed if opened, such as undergarments or food items.

What are their hours of operation?

Are you choosing a 3PL outside of your locale? Either way, check the hours of operation of a 3PL and opt for a provider that’s open during reasonable hours on your end in case you need to speak with customer support.

This will be tougher to achieve if using an overseas 3PL, so consider using a 3PL provider with offices in your time zone, but warehouses in national or international locations.

Supply Chain by Amazon 3PL programs

Supply Chain by Amazon provides a fully set of automated supply chain services that helps you get products from manufacturers to customers across the globe. The end-to-end solution keep products in stock, provides faster and more reliable shipping, and significantly lowers costs. Programs include:

  • Amazon Global Logistics: Amazon Global Logistics provides a worldwide ocean freight transportation program that can help you get products from China directly to the Amazon fulfillment network. You can book and track shipments all in Seller Central.
  • Amazon Partner Carrier Program: The Amazon Partnered Carrier Program offers discounted shipping rates for small parcel deliveries (SPDs), less-than-truckload (LTL), Intermodal (IM), and full-truckload (FTL) shipments within the US. By working with partners who have direct experience shipping to Amazon, you can reduce overall costs, track deliveries, and get cover for any loss or damage with the FBA reimbursement policy.
  • Amazon Warehousing and Distribution: An integrated low-cost bulk storage option that allows you to send your inventory for bulk storage at an Amazon distribution center. With AWD, you can keep your products in stock and automatically replenish them when needed, get your products to your customers more quickly, track your inventory at any time, and boost efficiencies across your entire supply chain.
  • Fulfilment by Amazon (FBA): FBA lets you outsource order fulfillment to Amazon. With FBA, you send products to Amazon’s fulfillment network and we store, pick, pack, and ship orders on your behalf while taking care of returns and customer service. FBA can make fulfillment easier, faster, and less expensive. It can also help you increase sales and reach customers around the globe.
  • Multi-channel fulfillment (MCF): Multi-Channel Fulfillment provides low cost, reliable fulfillment for any of your ecommerce sales channels, as fast as two days. You can also enroll in Buy with Prime to display the Prime logo and offer free two-day shipping to customers on your own website. You get discounted shipping rates and real-time monitoring of customer shipments.
Did you know?
Fulfillment by Amazon can save you money
Shipping with Fulfillment by Amazon (FBA) costs 70% less per unit than comparable premium options offered by other US fulfillment services.

Grow your ecommerce business faster with 3PL

With third-party logistics, you get the services needed to scale without sacrificing the customer experience. Consider using Supply Chain by Amazon services or Amazon’s Service Provider Network, which can help you find high-quality service providers for everything from bookkeeping and advertising to account management and international shipping.

If you’d like to learn more about fulfillment, then check out this ecommerce fulfillment guide.

Amazon is an engine of growth for us. We’ve had triple-digit growth, which is remarkable.
Karen Tay
Co-founder of Fair Havens

How to sell on Amazon from anywhere in the world: Global Seller Success Story



What’s a third-party logistics company?

A third-party logistics (3PL) provider is an independent business that provides services to ecommerce sellers. 3PLs are often referred to as “outsourced logistics providers” or “logistics service providers,” and they can be found at every stage of the supply chain. They offer solutions like warehouse management, transportation, inventory control, order fulfillment, customer service, and data analysis.
What does “3PL” stand for?
In ecommerce, “3PL” stands for “third-party logistics.” Third-party logistics providers handle various steps in the fulfillment process—like storage, packing, and shipping products—so that orders can get to customers who place purchases online.

What is a 4PL?

Fourth-party logistics, or 4PL, is a service ecommerce sellers use to manage all aspects of the supply chain. In some scenarios, the 4PL will hire a 3PL and oversee activities to ensure everything runs smoothly. The 4PL becomes your single point of contact in the supply chain.
What does “4PL” mean?
The term “4PL” stands for “fourth-party logistics.” 4PL provides are usually responsible for managing independent 3PL providers. A fourth-party logistics provider is sometimes also called a lead logistics provider (LLP) because they might specialize in directing one or more parts of the supply chain.

How do you manage a 3PL?

Here are a few tips for 3PL management:
  • Be clear about your expectations (e.g., when to restock or throw away an item, how to bundle goods)
  • Set realistic goals and expectations
  • Determine your point of contact at the 3PL
  • Maintain open lines of communication
  • Use software to track inventory and sales

What’s the difference between 3PL and a freight forwarder?

A 3PL is a company that provides services such as warehousing, transportation, inventory management, and returns processing.

A freight forwarder doesn’t provide any of these services but instead acts as an agent to find one or more shipping carriers to transport goods from Point A to Point B.

Freight shipping is the process of transporting goods from one location to another using freight trains, airplanes, ships, or freight trucks. For example, freight shippers might pick up cargo from a manufacturer in China and transport it by sea to the docks in America, where a logistics company can pick it up for transport to your warehouse.

Freight receiving is the process of accepting freight shipments, which consists of removing them from the trucks, organizing the goods, and stocking them on warehouse shelves for future picking and packing.

What’s the difference between a 3PL and a freight broker?

A freight broker is a liaison between companies needing goods transported from a manufacturer to a warehouse. The freight broker finds reputable companies, negotiates rates, and arranges freight shipments on your behalf.

A 3PL manages the logistics, as well as other services, such as warehouse and inventory management, and product returns.

How do you measure 3PL performance?

To measure the performance of your 3PL provider, ask the following questions:
  • Are customers receiving their shipments on time?
  • How many complaints about shipping and packaging do you receive monthly?
  • Are orders shipped to customers accurate?
  • How long does it take to fulfill customer orders?
  • Are inventory level reports accurate?
  • Are returns processed in a timely fashion?
  • Are costs for services still affordable?
Is FedEx a 3PL?
FedEx can be considered a third-party logistics provider. Other 3PL examples include United Parcel Service (UPS) and DHL Supply Chain.

Daisy Quaker
Daisy Quaker
Daisy Quaker is a Sr. Marketing Manager at Amazon who’s driven by helping entrepreneurs and brands discover opportunities to reach more customers through Amazon stores. She also enjoys the outdoors, art museums, and good food.