3PL stands for third-party logistics. It means a business uses an external company to carry out or manage logistics activities, such as storing, handling or transporting goods. The services included depend on the provider and the agreement.

What does 3PL mean in logistics?

In logistics, the “third party” is an external provider that handles agreed tasks in a business’s supply chain. The business still owns its products and manages its customers, while the provider carries out some of the work needed to store or move those products.

For example, a manufacturer might make and sell its own products but use an outside company to store them and arrange deliveries to retailers. Another business might keep its own warehouse but use an external carrier to transport goods.

The 3PL meaning in logistics is therefore not one fixed package of services. It describes an arrangement where a business outsources some logistics work to another company.

What services can a 3PL company provide?

A 3PL company may provide one service or combine several. Common services include:

• Warehousing and storage: holding goods until they are needed. Businesses can find out more about Montgomery’s warehousing services.
• Receiving and handling: accepting deliveries and recording or moving goods within a facility.
• Inventory management: keeping stock records and reporting available quantities.
• Order processing, picking and packing: preparing products for dispatch.
• Transport and distribution: moving goods between sites or delivering them to customers. Montgomery’s Distribution Services cover palletised distribution.
• Cross-docking: transferring goods from incoming to outgoing vehicles with little or no storage.
• Returns handling: receiving and processing goods sent back by customers.

Not every provider offers all these services. Some operate their own warehouses and vehicles; others arrange transport through carriers and logistics partners. Montgomery’s Transport Services include full and part-load movements between Great Britain, Northern Ireland and the Republic of Ireland.

How does 3PL work?

A typical 3PL arrangement may follow these steps:

1. Agree the services. The business and provider decide which tasks the provider will handle, where goods will be stored or moved, and how the work will be managed.
2. Send or collect the goods. Products arrive at the provider’s warehouse or are collected from the business.
3. Receive and handle the goods. The provider records the delivery and carries out any agreed checks or handling.
4. Store or prepare the goods. Depending on the agreement, products may be stored, sorted, picked, packed or prepared for transport.
5. Arrange delivery. The provider transports the goods or coordinates delivery through a carrier.
6. Share updates. The business receives agreed information, such as stock reports, delivery updates or proof of delivery.

The process varies between providers. A business might outsource warehousing and transport but continue to manage its own orders and customer service.

What is 3PL warehousing?

3PL warehousing means using an external company’s warehouse to store or handle goods. It may be a standalone storage service or part of a wider arrangement that also includes stock management, order preparation or delivery.

Storage alone does not necessarily include inventory management, picking and packing, order fulfilment or transport. Businesses should check which activities are included in the service.

If you are comparing providers, our guide explains what affects 3PL warehousing costs.

What are the potential benefits of 3PL logistics?

The potential benefits depend on the business’s needs and the services provided. They may include:

• Access to warehouse space or transport capacity without managing every facility or vehicle in-house
• Flexibility to adjust storage or distribution arrangements as requirements change
• Support from a provider with relevant logistics facilities, systems or experience
• Coordination of several agreed logistics activities through one provider

There can also be trade-offs. A business may have less direct control over day-to-day handling, so responsibilities, communication, costs and service levels should be agreed clearly. Outsourcing does not automatically reduce costs or improve delivery performance; the results depend on how well the service fits the business.

3PL examples

A manufacturer distributing finished products
A manufacturer produces goods and manages its own sales but hires an outside provider to store its products and arrange deliveries to retailers. The provider handles the agreed logistics tasks while the manufacturer remains responsible for its products and customer relationships.

For an example involving everyday consumer products, see how FMCG logistics supports the supply chain.

A business using external transport
A business manages its own warehouse but uses an outside carrier to move goods to customers or other sites. This is an example of outsourcing one logistics activity rather than handing over the entire process.

What should a business check before using a 3PL?

Before agreeing to use a provider, establish:

• Which services are included and which remain your responsibility
• What types of goods the provider can accept
• Where goods will be stored and which areas can be served
• How stock and deliveries will be recorded or tracked
• How the provider will communicate updates or problems
• What service levels, charges and contract terms apply

The term “3PL” can describe different arrangements, so ask the provider to explain exactly what it will do, from receiving goods through to delivery.

If you are also considering broader supply-chain management, read our comparison of 3PL and 4PL logistics.