Freight forwarder vs third party logistics service

Goods are moved all around the world. When you move goods, what matters is that if you are able to transport them in a hassle-free and safe manner. It is generally easy to transport goods when only one mode of transport is involved. But today you can choose between a freight forwarder and a third-party service provider, a trucking or a logistics company, or even between single and multi-carrier shipping.

In order to help you make the best choice for your business, this article explains what freight forwarders and 3PL service providers are, the difference between a freight forwarding company and a 3PL company and how to make the right choice.

What is freight forwarding?

A freight company can help you transport your goods from a pick-up location to their destination. The shipment may involve single mode or multimodal transport.

For example, a freight forwarder can help you to transport your products from Mumbai to Chennai. It will pick up goods from your factory and use road transport to the nearby railway station or airport. Then use railway or airway (the customer’s preferred choice) and then use road transport for the last-mile delivery.

Some of the advantages of using freight forwarding services include:

• Documentation: It is one of the biggest advantages in the case of international shipping. Since the freight forwarders have required experience in shipping goods in and out of the country, they are well aware of documentation. Hence, it is hassle-free to be compliant with the documentation.

• Timely deliveries: Freight forwarders know about the integrities of multi-modal transportation. Therefore, they are well aware of the estimated time required for delivery. Moreover, it is easier for a freight forwarding agent to foresee delays and take steps to avoid it.

• Global partners: Freight forwarders are well connected and have their tie-up in the international markets. Hence, it is hassle-free for your business to deal with a freight forwarder instead of coordinating with all stakeholders individually.

Also read: How to start a freight forward company?

What is 3PL services company?

A third-party logistics company is more than just freight forwarding. 3PL services include all the required support in the logistics function such as pickup, storage, warehousing, packaging, distribution, etc. A third-party logistics company acts like a partner to your business that can handle logistics functions entirely on its own.

Therefore, many times 3PL companies are referred as third party logistics partners. A 3PL company further has tie-ups with freight forwarders and trucking companies for transportation.

Here is an example for you to understand the scope of 3PL. If you are a manufacturer of stationery items such as pens, pencils, crayons, poster colours, rulers, etc. The 3PL partner will keep an eye on inventory, store it in the warehouse, receive orders on your behalf, pack the required quantity and ship it. It also takes care of returns i.e., reverse logistics.

Some of the advantages of 3PL include:

• Inventory management: Your employees do not have to do inventory management, which saves time, effort and cost for you. Because managing inventory on a smaller scale might be costlier than doing it on a mega scale.

• Warehousing: You do not have to invest in any infrastructure for storing your products. A 3PL partner can responsibly undertake storing and warehouse logistics activities on your behalf. Moreover, you can be closer to your customers. Meaning you can choose a 3PL partner having warehousing capacity nearer your customers’ base so that you can offer quick deliveries. For example, if your customer base is concentrated in Delhi region while your factory is in Pune, you can tie-up with a 3PL partner having a warehouse nearby Delhi for ease.

• Customer satisfaction: While receiving end-to-end logistics process, the 3PL companies also keep he customer in the loop giving them tracking number. This enables customers to have a view of where their orders are. Also, the 3PL partner can deliver the orders in a given timeframe, which allows your business to score some brownie points and improve the level of customer satisfaction.

What should you choose – a freight forwarder or a 3PL company?

If to hire freight forwarding services or third-party logistics services completely depends on the nature of your business. (Also read: Freight forwarding industry in India – Market size, trends, challenges)

For example, if you are an e-commerce company, it is convenient for you to source products and take the help of the 3PL partner for warehousing and dispatching as per the received orders.

How do you choose the right partner for your business? Here are some scenarios to help you decide.

• High volume of returns: If you are in a business that witnesses a high volume of returns, repairs and replacements, the best choice is to have a 3PL partner.

• Investment in warehousing: Warehousing is a costly affair. Small businesses are usually not able to invest in warehousing facilities and other allied requirements such as warehouse automation. In such a case, having a 3PL partner is convenient.

• Distribution in the global market: In case you want to ship your products to international markets, store it and then dispatch them to multiple local distributors, it would be a good idea to have a 3PL partner with a global presence so that you can leverage their capabilities and experience across the world.

• Point-to-point global trade: If you are involved in global trade where you need to ship goods directly to the distributor/customer, it is sensible to hire a freight forwarding service provider. It will take care of documentation, transit insurance and compliance part.

• Requirement of domestic shipments with multi-modal transport: Road transport in India is usually costly and not viable for long distance shipments. As a result, you may have a shipment to be shipped by rail or air depending on the urgency and viability. Such multi-modal transport requires experience which freight forwarding companies can offer. Therefore, it is best to use freight forwarding services.

• Local shipments: If you need to ship bulk products through roadways to a distributor located nearby, it is best to use a trucking company. However, the low volume makes it difficult for you as the trucking companies will charge for the full truck even if your products occupy only half the truck’s space.

In such case, partial truck load (PTL) is the viable option where you share the truck space with a different business, and pay for the space (half) you occupy.

Closing thoughts

There is no fixed formula to select the right type of logistics partner for your business. It all depends on your business activities and needs. Therefore, determine your needs and choose your partner wisely. You can also choose more than one type of partner if the volume of shipments is higher with varied needs.