Contract Logistics vs 3PL: What is the Difference

Supply chain management is necessary for businesses to optimise their efficiency and cost-effectiveness. In the dynamic world of supply chain management, there are various logistics outsourcing options that a business can consider depending on their unique requirements.

Some of these options include freight forwarders, contract logistics, 3PLs vs 4PLs, lead logistics providers, carrier partners and many more.

Of these, Contract Logistics and 3PL are often confused with the other. But both these services are distinct and serve different benefits. In this article, we will highlight the difference between Contract Logistics vs 3PL, delve into the key characteristics and benefits offered by each, and understand how businesses can leverage each to meet their unique needs. 

What is Contract Logistics?

The logistics outsourcing option in which a specific aspect of an organisation's supply chain is outsourced to a single service provider on a contract basis is Contract Logistics. The contract logistics partner assumes responsibility for various logistic-related functions predominantly delivery management functions. 

Key Characteristics and Benefits 

• Holistic Approach - Contract logistics provides a holistic approach by providing end-to-end outsourcing solutions and a seamless integrated approach to the entire supply chain.

• Tailored Solutions - Customisation is the key characteristic of Contract Logistics. They provide tailored solutions that align with the unique needs of the client and allocate dedicated resources to meet their specific requirements.

• Long-term commitment - Another key characteristic of contract logistics is the long-term commitment between the logistics provider and the client. Often the contracts extend over several years which fosters predictability and stability in the relationship. 

• Industry-Specific Solutions - Contract Logistics providers often specialise in specific industries which allows for the customisation of services that align with the unique needs of clients. 

• Risk Mitigation - Long-term commitment which the contract logistics provides the client results in risk mitigation for the client and a stable operational environment. It ensures that the client can rely on consistent service levels and impact of uncertainties such as market fluctuations and unforeseen events is lessened.

What is 3PL

Third Party Logistics commonly known as 3PL encompasses a broader range of outsourcing activities related to logistics and supply chain management such as transportation, warehousing, order-fulfilment, delivery management and freight forwarding. 3PLs are often more flexible and modular. Businesses can selectively outsource specific logistics functions to multiple 3PLs. 

Key Characteristics and Benefits 

• Modular Approach - 3PLs provide a more modular and flexible approach by enabling companies to outsource selective logistics functions to multiple service providers. This offers businesses flexibility to engage different providers for different logistic services.

• Variable Cost Structure - Unlike the fixed cost structure of a contract logistics provider, 3PL generally operates on a variable cost structure. Depending on the specific services they use, companies pay accordingly. It is advantageous for businesses with seasonal or dynamic logistics requirements.

• Collaborative Ecosystem - Since 3PLs operate in a collaborative environment with a big network of partnerships, it allows businesses to benefit from a diverse set of resources and skills without a long-term commitment to a single logistics partner. 

• Global Reach - Another key characteristic of 3PL providers is that many offer services globally, allowing businesses to expand their reach internationally without investing significant resources in infrastructure. 

• Specialised Expertise - 3PLs tend to specialise in specific logistics functions or industry verticals, bringing a depth of expertise in these specialised areas. It allows businesses to leverage this expertise and benefit from 

Contract Logistics vs 3PL: What is the Difference

Now that we understand the key characteristics of Contract Logistics vs 3PL, let us elaborate on the difference between them.

1. Scope Of Services

Contract Logistics encompasses comprehensive end-to-end outsourcing solutions and forms a long-term partnership with a business. Usually, a single service provider is involved which takes responsibility for various logistics functions.

3PLs offer a more flexible and modular approach and allow companies to selectively outsource specific logistics functions. Here multiple service providers are usually involved in carrying out various outsourced logistics services.

2. Ownership Of Assets

Contract Logistics companies generally lease the assets and infrastructure they use or subcontract to other firms. For instance, they may opt for contract warehousing instead of owning warehouses.

3PLs usually own the assets they use. A 3PL if needed may lease an asset if required but a Contract Logistics company will rarely get into direct ownership of assets.

3. Geographical Reach

Contract Logistics have a more global presence owing to their flexibility in choosing service providers. When needed they can team up with other partners in the required geographical location or subcontract the work.

3PLs have a limited geographical reach as they are limited by the location of their assets.

4. Integration With Other Service Providers 

Contract Logistics is better equipped to handle integration with other service providers as they integrate all logistics functions seamlessly, including inventory management, warehousing, order fulfilment, and distribution. This creates a unified supply chain operation.

3PLs do not offer large-scale integration with other service providers as they mostly own their infrastructure. They provide strong integration between the services provided by themselves but not with other service providers.

5. Commitment Duration

Contract Logistics provider’s relationship and commitment with the client is long-term. It spans several years which helps in fostering a stable and reliable relationship. An enduring relationship enables consistent service levels which align with the business objectives of the business.

3PLs are well suited for businesses with dynamic or changing logistics needs as their relationship with businesses is often short-term. It provides more flexibility and logistic partners and businesses can engage for specific short-term obligations.

6. Cost Structure

Contract Logistics can lead to cost savings as their engagement with clients is long-term which allows for economies of scale and optimisation of processes. The initial investment although can be higher but leads to cost savings over the long term.

3PLs relationship with the businesses is usually on a variable cost basis. Businesses can pay for the specific services which allows for immediate cost adaptability but the cost saving over the long term may not be as much as with Contract Logistics. 

7. Customisation

Contract Logistics providers tailor their services to align with the specific requirements of the clients. It facilitates a more efficient and responsive supply chain which is in line with the business objectives of the client.

3PL approach with the client is more standardised and provides adaptability. Though customisation can also be achieved if the client engages multiple specialised providers for different functions.

8. Industry Specialisation

Contract Logistics offers tailored solutions as per the unique requirements of the client and the industry in which it operates.

3PLs specialise in specific logistics functions such as transportation, warehousing, order fulfilment or industry verticals.

Contract Logistics vs 3PL: How to Choose

We discussed the distinct differences between contract logistics and 3PL. The decision to choose between them is a strategic one that is unique to business, industry and operational requirements. To make an informed choice, the following are the key considerations.

1. Logistic Requirements

The foremost consideration to look at is the requirement of the business. If a business needs a comprehensive, all-encompassing solution that covers the entire supply chain, Contract logistics should be chosen.

If the business wants to selectively outsource specific logistics functions, then a 3PL should be preferred.

2. Logistic Frequency

This is one of the other important considerations in deciding which logistic outsourcing option to choose from. If the business is looking for a long-term partner to manage its logistics needs, then Contract logistics is a wise choice.

If the business is looking at only occasional assistance in certain outsourcing tasks, then a 3PL is the better option.

3. Geographical Requirements

Another consideration to base the decision on is the geographical reach the business is looking at. Contract logistics should be considered if the business primarily operates locally and does not have frequent requirements of global reach.

But if the business needs logistical solutions that span across international borders or wish to enter new global markets, then a 3PL is the best bet.

4. Budget 

Contract Logistics providers are usually more expensive due to a long-term commitment. So if the budget allows an expensive option, it can be chosen. They are expensive but also provide a more comprehensive service.

 A 3PL, on the other hand, can be less expensive due to their short-term commitment and the nature of their services. 

Conclusion

Both Contract Logistics and 3PL are integral parts of supply chain management. Many may confuse the two and consider them to be the same, but each offers distinct advantages to businesses based on their unique requirements.

Businesses need to understand and appreciate the difference between Contract Logistics vs 3PL and make an informed and conscious decision to choose the outsourcing logistic service that suits them best.

Those businesses that are looking at outsourcing their courier services to an experienced 3PL, get in touch with us on how we can be of help.