Today, an estimated 2.8 million retailers sell their goods online in the U.S., with products distributed across their owned websites, platforms like Amazon and Walmart, and even physical retail. All of that translates to e-commerce sales of over $5.8 trillion globally. These items must be shipped to a warehouse, prepared for sale, stored, and then distributed to the end customer via a mix of last-mile and shipping carrier delivery.
For Amazon sellers, especially those with omnichannel operations, that increasingly requires them to shift from in-house logistics and warehousing to an outsourced service. With more than 21,000 3PL providers estimated in the U.S. alone distributing some 60% of all global shipments, there’s a clear gain in popularity.
Among available options, “3PL” (third-party logistics) involves logistics as-a-service for specific services, while “4PL” entails a single provider for an all-in-one logistics service. Even Fulfilled by Amazon (FBA), often referred to as 2PL, counts as outsourcing. In each case, the bulk of your logistics supply chain moves outside your company and relies on third parties to store, package, and distribute products.
If you’re considering outsourcing your logistics, you’re in good company. However, there are pros and cons to consider before jumping on the bandwagon.
Pros of Outsourcing Logistics for Amazon Sellers
Outsourcing logistics offers significant benefits for Amazon sellers of all sizes.
1. Cost Optimization
A single logistics provider can supply services to dozens or even hundreds of e-commerce businesses. That drives cost optimization based on economies of scale, capital power primarily invested in improvement, and increased access to resources. As a result, clients enjoy perks such as:
- Bulk or volume discounts with carriers
- Reduced cost per square foot for warehouse space
- Reduced rates for packaging materials
- Distributed warehousing capabilities to reduce cost of delivery and time to deliver
- Access to private fleets to provide last-mile delivery, which further reduces shipment costs
- Automatic shipping consolidation with other customers
- Shared staff
- Specialized workforce
- Investment in procedural, technological, and machine optimization
- Risk management
2. Freedom to Focus on Core Business
Building infrastructure to store, pick and pack, and distribute goods is a business all its own. Shifting that responsibility to a third party frees your organization and capital to focus on your core business operations like product development, sales, marketing, and customer service. You’ll have resources available that you’d otherwise spend on leasing warehousing, recruiting and training staff, finding software, etc.
3. Access to Technology
Outsourcing logistics grants you access to warehouse and transport management software. You receive real-time tracking, better inventory management, automatic pick and pack, and other features that would likely be too costly to implement on your own. While this doesn’t save your organization money directly, it allows you to offer a better customer experience, gain clearer insights into your own data, and optimize inventory.
4. Access to Expertise
Logistical companies possess specialized knowledge of the fulfillment process, including route optimization, finding the best partners to expand to a new geographic region, cutting costs, and regulatory compliance. That expertise simplifies operations and makes them more cost-effective. You also enjoy perks like dedicated teams, consultants, and established networks of partners for maximum efficiency.
5. Scalability
Employing temporary workers for peak seasons can be a nightmare: You hire and train temps, then hope they come through and work. Amazon sellers have tried to offset peak periods with 2PL services like FBA, but with the marketplace tying FBA restock limits to sales throughout the year, that’s becoming increasingly difficult. Outsourcing companies seamlessly take care of this for you, with the ability to add more staff, increase warehousing capacity, and make other adjustments based on seasonal demand.
A 3PL or 4PL can also make scalability easier as your organization grows. For example, if the 3PL has a presence in a geographic region you’re expanding into, branching out to that region would be a simple matter of distributing inventory to their warehouses there. Similarly, if your 3PL is large enough, it can easily handle migration of a new acquisition for inorganic growth. Outsourced warehousing and logistics gives you room to grow, even if it’s sudden.
Cons of Outsourcing your Amazon Logistics
Not every aspect of outsourcing e-commerce logistics is positive. Many Amazon sellers have to take on risks and dependencies that you’d avoid if you built the necessary infrastructure in-house:
- Moving inventory out of a 3PL’s warehouse takes time and a significant amount of effort. Also, if your outsourced logistics supplier faces issues like labor strikes or financial instability, your business will feel those effects.
- You’ll lose some oversight of warehousing, handling, and shipping. Goods may arrive from overseas, then your warehouse breaks them down into order packaging and handles distribution and delivery. You might never see your products.
- Ongoing communication can be difficult, especially if you don’t have real-time inventory management. You could end up with a chain of APIs connecting data, which can be complex to update and maintain.
- You’ll have to monitor your 3PL over the long term to ensure it remains cost-effective. With outsourced logistics, it’s important to keep track of costs and to look at total expenses paid, including surcharges, penalties, and other potential hidden costs, as these can be considerable.
- You’ll have to keep track of service levels to ensure they continue to meet your needs and agreements. If you do decide to end the contract, even that can be difficult, especially if you lock yourself into an agreement that becomes less favorable over time.
- Because you share sensitive business data with the 3PL, you’ll have to look at their compliance and how that provider protects your information.
Essentially, you’re responsible for monitoring your new partner and ensuring they meet their obligations.
The Bottom Line
Outsourcing logistics makes sense for all but the largest of Amazon sellers. In general, a 3PL can provide warehousing, shipping, and labor cheaper than you can in-house, because they capitalize on economies of scale to secure better pricing. They also bring the added value of improved processes, better customer service, and greater scalability. Dedicate more time to researching options to find a service that’s able to commit to the SLAs you need, as well as deliver that reliably for the duration of your partnership.
Are you looking for help with your Amazon logistics or prep? Reach out to MyFBAPrep for expert e-commerce fulfillment solutions.
