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May 12, 2015 by Logistics

What is a Third Party Logistics Provider (3PL)?

What is a 3PL??

By Rick Holden

 

A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced (or “third party”) logistics services for part of, or all of their supply chain management functions. Third party logistics providers typically specialize in integrated operations that include warehousing, transportation , and light assembly services. These services can be scaled and customized to customers’ needs based on market conditions. Often, these services go beyond logistics and include value-added services related to the production or procurement of goods.

 

There are many advantages to engaging a 3PL provider. These include;

 

  • Cost and time savings- A 3PL provider can meet the technical and equipment requirements in a faster and more cost efficient way than a manufacturer or distributor could do for itself. As logistics is the core competency of third party logistics providers they possess better know how and a greater expertise in providing supply chain solutions to their customers.

 

  • Low capital commitment- When contracting with a 3PL it is no longer necessary for the client to own its own warehouse facilities or transportation assets. This lowers the amount of capital required for the client’s business. This is particularly beneficial if a company has high variations in warehouse capacity utilization, because a bad capacity utilization ratio at equal fixed cost (for warehouse) will reduce a company’s profitability.

 

  • Focus- The outsourcing of logistics departments permits the company to focus even more on their core business. Manufacturers and distributors want to remain as competitive as possible. Allowing the focus of the organization to remain with the products it sells will enable the company who relies on a 3PL relationship to get more updated and relevant products to market faster and less expensively.

 

  • Flexibility- Third party logistics providers can provide a much higher level flexibility and scalability. When manufacturers and distributors contract with a 3PL it allows then to offer a much larger variety of services than the clients could provide for themselves.  In addition, the 3PL customer gets to utilize more flexible resources in labor, space and equipment. Essentially fixed costs are reduced and turned into variable costs.

 

As many companies would admit, logistics is not their core competency. These companies often do not have the time, resources or expertise to adapt their equipment and systems as quickly as necessary.   By contracting with a 3PL it allows these manufacturers and distributors a unique advantage over their competition as they are able to get the most efficient supply chain while still keeping the focus of the organization on what it does well.

 

Filed Under: News & Events Tagged With: Distributors in Richmond Virginia, Distributors near RIchmond Airport, Logistics Companies in Richmond, Logistics Companies on the East Coast, Richmond, Riverside Logistics, Transportation Companies in Virginia, Virginia, Warehouse on the East Coast in the U.S., Warehouses near the Airport, What is a 3 PL?, What is a Third Party Logistics Provider?

October 23, 2014 by Logistics

Small Package Dimensional Pricing Will Create Cost Increases for Shippers– Are you ready?

Small Package Dimensional Pricing Will Create Cost Increases for Shippers– Are you ready?
October 2014
By Rick Holden

Back in May of 2014 FedEx announced it would change its pricing model to apply dimensional weight pricing to its ground services. UPS followed suit with a similar announcement in June. Both companies new pricing will take effect at the end of 2014.

For years, UPS and FedEx have been working diligently to expand volumetric pricing – or dimensional weight pricing. Both companies have seen a substantial increase in e-commerce business that traditionally ship B to C (direct from the Business to Consumer).

Although this model has benefited the carriers with historic shipping volumes, it has also brought increased cost and a decrease in per package density. Many times, due to improper box selection, the carriers find themselves delivering boxes that are much larger than required for the safe delivery of a given product. When magnified across all shippers, this causes vehicles to fill up before they actually reach their physical weight capacity.

Starting at the end of 2014, all ground packages will now be subject to dimensional weight factors along with the potential for increased cost. The carriers’ position on this issue is to better align the rates that they charge with costs, which is influenced by BOTH the SIZE and WEIGHT of packages. In addition to creating additional revenue, the carriers hope that by subjecting all packages to dimensional weight billing that it will encourage shippers to reevaluate their packaging and ensure proper box selection when shipping.

From the carriers’ perspective, this change saves them from having to make additional capital expenditures in centers, hubs and vehicles. From the shipper’s perspective, it will be important to properly understand existing packaging characteristics and the potential negative impact while encouraging them to implement a proactive plan to mitigate any increases.

Lost Profits

A critical issue for any company to understand is that the change to dimensional weight pricing has the potential to increase UPS Shipping Charge Correction fees or FedEx “audited” charges. Unfortunately, many shippers simply weigh their packages and do not enter the dimensions because it’s less labor intensive. Moving forward, if shippers do not enter the dimensions at the time of manifest, they will receive out of week billing adjustments and potentially lost profit. This is especially true if the shipper passes the shipping cost along to the consignee. By not capturing the true dimensional weight, shippers will only pass along a portion of the total cost. Not only will they lose profit, but it will become very challenging to properly understand total landed cost for a particular order.

Dimensional Weight Basics

In its simplest form, dimensional weight is determined by using the following calculation: Length x Width x Height of the box divided by the applicable dimensional factor. Unless a shipper’s agreement calls for a modified dimensional divisor, then UPS and FedEx both use 166 domestically and 139 for international. When performing this calculation, fractions of an inch are either rounded up or down. If the measurement is one-half inch or greater, then it is rounded up. If the measurement is less than one-half inch, then it is rounded down. Shippers must be sure to measure the outside box dimensions, as some manufacturers quote the inside box dimensions. Also, shippers should be aware that as a package moves through the small package environment, that these packages may “bulge” and their dimensions may change during transit, which may result in adjusted charges.

Dimensional Weight Best Practices

As soon as possible, it will be important for companies to evaluate their current packaging practices and address the following areas:

• Box sizes vs. what is being shipped – Reduce the empty space in the box.
• Use stronger boxes to eliminate bulging.
• Dunnage – Use less or more effective packing materials.
• Dimensional Scanners – To accurately record dimensions at the time of manifest to prevent out of week shipping charge corrections.

As soon as possible evaluate your agreement with FedEx and UPS

• Look at your modifying your Dimensional Divisor.
• Cubic Threshold changes with a phased in approach.
• Grandfathering existing contract language concerning cubic thresholds.
• Offsetting incentives

As soon as possible look at how your company can utilize alternative carriers

• Look at regional smaller carriers
• Parcel/Postal Hybrid Solutions
• USPS

At Riverside we work with our clients to keep them abreast of the market changes that will affect their business and we continually work to match the best value transportation with the different client shipping needs.

Filed Under: News & Events Tagged With: Dimensional Scanners, dimensional weight pricing, Dunnage - Use less or more effective packing materials., East Coast, FedEx “audited” charges, Parcel/Postal Hybrid Solutions, Richmond International Airport, Richmond Virginia, Riverside Logistics, Shippers near the airport, Small Package Dimensional Pricing, UPS and FedEx, UPS Shipping Charge Correction fees, volumetric pricing – or dimensional weight pricing, Warehouses near the Airport

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