What is 3PL

For people new to the supply chain management and logistics industry, the term “3PL” is likely an unfamiliar term. This is certainly not surprising as every industry always has their own set of acronyms and buzz words, but I’d like to provide some clarity to the commonly asked question, What is a 3pl?

Picture of a warehouse, What is a 3PL

3PL Warehouse Facility, photo by Joe Goldberg

A couple years ago I put together a list to provide a 3PL definition but truly understanding what a 3PL company is and the services they provide really deserves a more in depth explanation.

While it isn’t immediately clear exactly who coined the term 3pl, its beginnings can be traced to the 70′s and 80′s as companies outsourced more and more logistics services to 3rd parties. Over time these 3rd party logistics service providers (3PLs) expanded their services to cover specific geographies, commodities, modes of transport and integrated their existing warehousing and transportation services, becoming what we now know today as a “3PL”

If there was any one moment that paved the way for the creation and growth of the 3PL industry it was the trucking deregulation of the 1980’s. More specifically it was the Motor Carrier Act of 1980 that limited the Interstate Commerce Commission’s authority over trucking which had previously heavily regulated rates and made it near impossible for newcomers to start companies in the trucking industry. With the exception of a few companies with degrees of integration, for the most part the industry was very separated. There were trucking companies, the railroads and then there were storage companies. With trucking deregulation, companies that had previously been in warehousing were given more freedom to move into freight management, and increased competition in trucking moved some trucking companies into warehousing as well.

Another important footnote in the evolution of the modern 3PL was the emergence of IT into trucking and warehousing starting in the 1980’s and into the 90’s. Today technology is among the core competitive advantages of third party logistics providers. Not only are they integrated providers of warehousing and transportation services, but they leverage sophisticated logistics software and inventory management technologies. Also incredibly vital in the history of the 3PL was the move towards globalization. While companies started out with one location and a small fleet of trucks, through both organic growth and aggressive mergers and acquisitions the largest 3PLs were conceived with locations across the globe.

As the 3PL industry continues to mature the role of the third party logistics provider in the supply chain will no doubt continue to evolve, but this is at least a basic overview into its origins and an answer to the question “What is 3PL?”

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