You’ve heard the terms “2PL” and “3PL” but aren’t exactly sure what they mean—or more importantly, what they mean for your business. You’re not alone.
As an industry leader in third-party logistics, we consistently see this question. Unfortunately, it’s often answered with confusing terminology and bland theory that creates more confusion, leads to poorly matched partnerships, and results in thinning margins.
Let’s fix that and get some clarity.
For easier navigation, we’ve split this guide into four sections:
What you’ll learn
Core differences between 2PL and 3PL, including scope of services
Cost structures and value propositions for 2PL and 3PL
How these providers differ regarding relationship dynamics, asset ownership, coverage, and guarantees
Business scenarios for each option
TL;DR:
Key takeaways
While 2PL providers focus solely on transportation services, 3PL providers offer comprehensive end-to-end logistics solutions that include warehousing, inventory management, order fulfillment, and returns handling.
Choose a 2PL if you only require transportation services and a transactional relationship.
Choose a 3PL if you need a long-term partner to manage your entire supply chain operations.
2PL vs. 3PL–quick summary
| 2PL | 3PL | |
|---|---|---|
| Core function | Transportation. | Logistics and fulfillment in the seller-to-customer part of the supply chain. |
| Scope of services | Transportation, logistics, and limited storage (warehousing as part of transport). | Receiving and shipping, FTL or LTL freight, inventory management, warehousing, order fulfillment, kitting, and reverse logistics (managing returns). |
| Example | A manufacturer hires a transport company to move goods between distribution centers or ship to a buyer. | An ecommerce store owner hires a 3PL company to manage warehousing, inventory, and fulfillment. |
| It’s for you if… | You only need transport. You handle the rest of the supply chain. | You need a long-term partner to help with supply chain management. |
Basics of 2PL and 3PL–what they are and how they work
Let’s start with the basics—and broad and narrow definitions.
Broad definition of a 2PL
A 2PL or second-party logistics provider is an operator that transports and (sometimes) stores goods.
Most 2PL companies are parcel and/or freight carriers.
This broad definition is widely accepted in modern-day logistics. To explain it, we’ll use the example of a fictional company–ABC Lamps.
Example
ABC Lamps hires FedEx to transport their lamps.
FedEx is the 2PL provider (per the broader definition).
Narrow definition of a 2PL
In some contexts, there’s an affiliation between the shipper and the 2PL company (like sister companies or subsidiaries).
Example
ABC Lamps grows and forms a subsidiary company—ABC Lamp Logistics—to move the goods. The new company owns the trucks used to move the goods, which keeps the transport costs in-house.
ABC Lamp Logistics is the 2PL provider (per the narrower definition).
How 2PL works
Below are the steps provided by a typical 2PL service:
01
ABC Lamps needs to move 1,000 lamps between locations.
02
They find a 2PL provider.
03
They sign a contract outlining the terms, scope, and timeline.
04
ABC Lamps packs and prepares the shades for transport–boxing, labeling, palletizing, etc.
05
The 2PL company picks up the lamps and transports them using its vehicles. Any storage/warehousing is limited to the transport needs (common with longer multimodal moves) unless otherwise specified in the contract.
06
The lamps are delivered.
What is a 3PL?
A 3PL (third-party logistics) company is a provider of logistics services in the seller-to-customer part of the supply chain.
A 3PL provider handles or arranges warehousing, inventory management, order fulfillment, receiving and shipping, freight, kitting, and reverse logistics (managing returns).
Ecommerce and other companies outsource logistics and fulfillment to 3PL providers.
NOTE: Kitting is the process of combining multiple individual products or components into a single package or “kit” that is then sold and shipped as one unit with a unique SKU (Stock Keeping Unit).
How 3PL works (example)
The infographic below shows how 3PL services work.
To resume:
The seller hires a 3PL company.
The goods are transported to the warehouse of the 3PL.
Inventory is created, and seller platforms are integrated with the 3PL systems. This allows all orders and returns to go directly through the 3PL.
The 3PL manages and executes the rest of the supply chain.
A 3PL company is typically asset-based, which means they own or rent the space, tools, and resources they use.
This might include a fleet of vehicles and a network of warehouses.
Pros and cons of the two models
Below are the main benefits and drawbacks of second- and third-party logistics providers–from the angle of a business looking to choose between them.
| Pros of 2PL | Cons of 2PL |
|---|---|
|
|
BOTTOM LINE: A 2PL is a fit if you only need transport and not a long-term partner to help with warehousing, logistics, and fulfillment.
| Pros of 3PL | Cons of 3PL |
|---|---|
|
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NOTE: The cons highlight the importance of choosing the right 3PL provider–one that mitigates the risks of sharing data and adds value immediately. Red Stag is an award-winning 3PL fulfillment company with an impeccable track record of excellence, reliability, and transparency–all backed by unparalleled fulfillment guarantees.
Differences between a 2PL and a 3PL–explained through examples
The key difference between a 2PL and a 3PL provider is the scope of services and core function. A 2PL moves goods, while a 3PL manages the whole supply chain from seller to buyer.
In other words–a 3PL does more than a 2PL.
Differences in greater detail
Let’s define a more complete list of differences and explain each in theory and through examples.
We’ll use (again) the fictional ABC Lamps.
Comprehensive list of differences:
01
Core function
02
Scope of services
03
Nature of the relationship
04
Involvement and integration
05
Costs and savings
06
Guarantees/coverage
07
Size of providers
08
Assets owned
Difference in core function and scope of logistics services
01
The core function of a 2PL provider is to transport the goods using their assets.
The services included are transport and, sometimes, storage.
The transport can be:
Between two business locations–manufacturing facility to retail store.
To a customer–distribution center to buyer’s address.
Executed via any mode needed–land, air, ocean transport, or multimodal.
Local or international shipping.
The core function of a 3PL provider is to manage the supply chain operations from seller to customer.
This includes a wide range of services–including receiving and shipping, freight transport, inventory management, order fulfillment, returns, and more.
In other words:
You hire a 2PL provider to move your goods.
You hire a 3PL to take logistics and fulfillment off your hands.
Difference in involvement, relationship, and integration
02
The shipper’s relationship with a 2PL provider is typically short-term, often a one-off.
It’s transactional. The 2PL transports the goods, and the shipper pays for the service.
For example:
ABC Lamps needs to move 1,000 units from Portland to Chicago once every 6 months.
They do it through FedEx the first time and are satisfied.
They keep using FedEx for the move at regular intervals.
There’s no need for integration between platforms or data sharing.
SIMPLY PUT: If there’s a predictable need for a service, it might become a long-term relationship, but it’s usually based on separate transactions.
A shipper’s relationship with a 3PL partner is typically long-term.
An experienced 3PL partner will take the time to understand your business.
They will:
Integrate the seller and fulfillment platforms.
Analyze your data to prepare for seasonal changes or local surges.
BOTTOM LINE: The involvement is more hands-on, and you’re more likely to know the 3PL people by first name. When it’s a match, the relationship spans over years, decades even.
Difference in costs and savings (value proposition)
03
The costs of 2PL and 3PL services aren’t directly comparable because the scope is different.
It makes sense to compare the value proposition.
01
The value proposition of a 2PL is to lower the cost of transport by using their vehicles instead of buying your own.
02
The value proposition of a 3PL is broader. You use their resources to manage a significant part of the supply chain.
The growth stage and size of the business are significant factors in choosing between #1 and #2.
These are the main scenarios:
Your business is small enough to store goods and fulfill all orders in-house. You use a 2PL for transport.
Your business is big enough to own a warehouse and employ people to fulfill orders, and you only need transport. You hire a 2PL.
In all other stages of growth, a 3PL provider is likely the more cost-effective solution.
BOTTOM LINE: For most medium-sized businesses selling to customers, outsourcing to a 3PL makes more financial sense than renting warehouses, buying forklifts, and employing people to pack and ship.
Difference in guarantees/coverage
04
A 2PL provider might cover any loss or damage that happens in transport.
Few notes:
The carrier’s liability is limited by the declared value* of the goods.
Declared value is not insurance and is subject to limitations and exceptions.
Most major carriers offer free coverage up to $100. Declaring a higher value will add to the shipping costs.
*Declared value is the monetary value you (the shipper) assign to the package.
A good 3PL company typically offers extensive guarantees regarding:
Timeline
Accuracy
Shrinkage/damage
Explained using the ABC Lamps example:
- ABC Lamps ships 1,000 units with a 2PL carrier.
They declare that one lamp is worth $20. The carrier’s maximum liability is $20,000–provided that no exceptions apply (like Acts of God, improper packaging, shipper’s negligence, etc.). - ABC Lamps finds a 3PL with a zero shrinkage policy.
They never lose a dime due to loss or damage because the 3PL covers these costs at wholesale prices.
Difference in size of 2PL and 3PL companies
05
A 2PL provider can be a truck company with one vehicle. There is practically no minimum as long as they can move the goods.
It can also be a big company like Maersk, which owns more than 700 vessels.
A 3PL provider has a significant size threshold.
To operate warehousing and fulfillment effectively, you need significant resources–from space and machinery to software and people.
Two key takeaways are:
You might see a mom-and-pop provider of 2PL services.
You won’t see this in the 3PL arena. That doesn’t mean you can’t find a 3PL with a personal touch.
Difference in assets owned
06
A 2PL provider owns the vessels they use for transport–trucks, railcars, ships, and airplanes.
Some 2PL companies own warehouses and handling equipment like cranes and forklifts.
A typical 3PL is also asset-based, but the resources are different.
They own or rent warehouses, fulfillment and packaging equipment, and some vehicles.
Robust management software is a big piece of that puzzle.
BOTTOM LINE: A 3PL provider might leverage the 2PL’s fleet. It translates to transport flexibility.
Choose the right 3PL partner for peace of mind
To free up your time and focus on marketing and growth, consider partnering with a reliable 3PL partner like Red Stag Fulfillment.
We understand what a single late package means for your bottom line.
We understand what a one-day delay means for your brand image.
That’s why we offer complete guarantees—including zero shrinkage–to make sure you never lose a dime to poor shipping practices.
Contact us today, and let’s talk about making your life easier.
