The key to successfully launching and running a brand or company that delivers goods directly to customers and businesses is ensuring an efficient and operational logistics process. Because many product developers got into the business of creating and not delivering, the growth of Third-Party Logistics (3PL) companies and freight brokers has exploded as rapidly as the eCommerce revolution. But what exactly is the difference between a 3PL and a freight broker, and which one does your business need? Let's break it down.
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What is a Freight Broker, and what do they do?
Any entity licensed as a freight broker acts as a service provider that liaises between carriers and shippers. Freight brokers match key supply chain elements to one another, ensuring continuity of transportation. Brokers provide business to carriers and service providers, which increases those companies' revenue. They also offer a portfolio of service-specific providers for shippers, which improves flexibility and leverage when managing supply chain coordination. Freight brokers have no physical assets of their own. Instead, they purchase transportation and equipment services from Logistics Service Providers (LSPs) that form part of the broker's operational network. The quality and reliability of these LSPs become the freight broker's most valuable asset and are essential to earning the freight broker a positive reputation. The brokers coordinate carrier services with the product providers but never take possession of the shipper's inventory. Smaller or seasonal companies contract freight brokers when they have infrequent or inconsistent shipping needs and rely on the broker's network to handle their distribution operations. Freight brokers are typically employed on an as-needed basis and therefore do not usually get involved with their clients' general supply chain operations management.
Freight Broker Pros
Freight brokers only make money by connecting shippers to the suitable carrier in the right area at the right price. Because the freight broker invests in tracking truck market operations, technology advancements, and logistics expertise, the broker's customers save having to make these same investments. They can also use their market awareness to ensure you're getting the best deals in an often price fluctuating industry.
Convenience & Flexibility
Things can and will go wrong while shipping from Point A to Point B, and when trucks break down, or loads fail, the freight brokers spring into action to find their customers immediate solutions that keep freight moving and supply chains operational. Freight brokers also allow their businesses to focus on other matters while offering varying transportation methods and types of service. The best brokers maintain a vast network of carriers, giving them the capability of moving different types of freight - whatever your company needs.
Freight Broker Cons
Freight brokers may connect you to carriers, but the broker doesn't own, operate or employ any assets that get your product from here to there. Their services rely entirely on the network of carriers they've developed and maintained over the years. These relationships can prove consequential when the broker ensures the carrier comes through with its obligation. Still, the broker isn't talking to the carrier operators nor is the broker there when the product gets loaded or unloaded, so their service is only as good as the service providers they connect you to.
Finding the Freight Broker
Calling oneself a freight broker does not a freight broker make. Shippers often run into problems when they pick an inexperienced or bad broker. With over 15,000 brokers available nationwide, it can be challenging to vet your service provider, which could result in damage to your supply chain. It's important to do your research and ask for references.
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What is a 3PL, and what do they do?
In contrast to freight brokers, third-party logistics providers tackle the overall supply chain operation more. They can provide the same services as freight brokers, but they can do a lot more, too. 3PLs typically offer services for most, if not all, of the supply chain operation and become heavily involved in managing the process. Rather than individual freight brokers, 3PLs offer teams of experts dedicated to strategizing, implementing, and optimizing solutions throughout your supply chain. Often, 3PLs own and operate a variety of assets, including equipment and storage facilities, and can offer flexible services that better meet the demands of each customer. 3PLs have the capability of making business decisions, including asset acquisitions and selecting core competencies. Rather than short-term customer relationships, 3PLs usually develop and service long-term customer-provider business dealings, allowing them more flexibility to meet customer demands. 3PLs also tend to have access to the latest industry technologies and use cloud-based management systems to communicate across the entire supply chain. They also implement optimized IT solutions for freight, courier, and warehousing services.
Efficient Supply Chain Operations
3PLs continuously optimize their customer's supply chain logistics, resulting in oversight that leads to highly efficient fulfillment operations. They search for process improvements, freight savings, and the best warehousing options, keeping your company's distribution and shipping at the top of its game.
Logistics and Financial Analysis
3PLs log all spending and develop plans to optimize financial efficiency. They'll analyze shipping processes, warehousing operations, picking and packing procedures, and carrier protocols to ensure you're not spending more than you need to and your goods are moving swiftly at the same time. You'll additionally save by being able to focus your time and workforce toward other areas, with 3PLs handling the bulk of your logistics and supply chain needs.
3PLs can manage every aspect of supply chain logistics, and they're extremely good at doing so. As a result, many product developers and shippers fail to develop supply chain management skills of their own. This can cause problems down the line if the shipper wants to change the way they operate, or if they're not a fan of losing control.
Hiring a third-party logistics company can require an expensive initial investment. Not only will the transition to a 3PL require a significant time commitment to bring the service provider up to speed on your product and distribution needs, but they'll also increase your financial output while their employees observe, analyze and implement efficient solutions well before you see the results - and benefits - of their involvement.
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Considering a third-party logistics company to manage your supply chain needs? Visit Dynamic 3PL to learn how they can optimize your fulfillment operations.
Which is the better option? 3PL or freight broker?
The answer to which is better must take into account the size and logistics of your needs. Both offer essential services for supply chain operations while investing in skilled labor and boasting vast industry expertise. Shipment sizes, shipment frequencies, length of desired contracts all come into play when choosing a service provider. Shipping mishaps are inevitable no matter what type of logistics operation you enable; however, doing your research and contacting reputable 3PLs or brokers can go a long way. Be sure your logistics service provider has the means to offer transparency and communicate efficiently, so you are always in the know.