The only question more frustrating than how to find a new 3PL is how a 3PL charges. A lot goes into making your final bill for 3PL services. Unless you have an invoice auditing arsenal of expertise, you’re always going to have questions.
Since all invoices are charged differently and even with the same service, the spending can be different for various industries and business types, it’s difficult to come up with a universal answer to the questions above.
That’s why we can look at the factors that influence 3PL costs.
Factors That Influence 3PL Costs
There are a number of factors that will influence the costs charged by third-party logistics providers (3PLs). These include the size and scope of your business, the nature of your products, your shipping volume and frequency, and the locations you ship to and from.
In general, businesses that are larger in size and have more complex shipping requirements will pay more for 3PL services than smaller businesses with simpler shipping needs.
To put it into perspective, let’s say a business that requires kitting and labeling would obviously require a 3PL that offers these value-added services.
Although the competition in many areas makes the industry’s average prices fall down, factors like location and time can make the providers raise their prices substantially higher as well.
This is because 3PLs typically charge based on the amount of work required to manage and execute your shipping operations.
The type of products you ship will also influence your 3PL costs. If you ship hazardous materials or live animals, for example, you will likely be looking at a bigger bill. Similarly, fragile, perishable and other types of products are likely to get a different price.
Your shipping volume and frequency will also affect your 3PL costs, meaning shipping large volumes of products on a regular basis will result in long-term discounts from your provider.
Conversely, businesses that only ship occasional orders may pay higher rates since they are not providing a consistent stream of business for the 3PL provider.
Finally, your shipping locations can also impact your 3PL costs. International and domestic freights can have different rates that can also vary with time and other geological or geopolitical circumstances.
Another thing to wonder here is how a 3PL company makes money.
How Does a 3PL Make Money?
The most common way a 3PL provider makes money is by charging a percentage of the total cost of the shipment. This fee is usually negotiable and will vary based on the size and scope of the project.
Other ways that 3PLs can make money include charging for access to their network of carriers, charging for storage, or earning revenue from value-added services such as packaging or assembly.
How to Audit 3PLs?
1. Baseline Costs
Before you can determine whether or not your 3PL is charging you a fair price, you need to know what your shipping costs would be if you were doing it yourself. This will be your baseline cost.
2. Pay for What You Get
Once you know your baseline costs, take a look at your 3PL invoice and make a list of all the services they’re providing. These might include warehousing, pick and pack, order fulfillment, etc.
3. Compare prices.
Now that you know what services you’re paying for, compare the prices charged by your 3PL with the prices charged by other providers. You can use an online freight quote tool like Freightos to get instant quotes from multiple providers.
4. Review SLAs
SLAs are agreements that dictate the threshold for the compromise that you’re likely to expect with regard to the service you get.
Although service levels involve a range of different avenues, common questions can help finalize your decision.
What type of customer service does your 3PL offer? How quickly do they respond to inquiries? Do they provide tracking information?
Make sure the level of service offered matches your needs and expectations.
5. Hidden Charges
Some 3PLs charge hidden fees that can add up quickly. Be sure to analyze your invoices and ask questions before you process payments regardless of the level of service you get.
Unintentional accounting errors or mischarges are also common in logistics when simple observation and prompt communication can solve the situation.
Need Help?
Consult supply chain consultants that can help you find the best 3PL service while ensuring you get the lowest possible price for it. For all this and more, book a consultation!
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