A third-party logistics (3PL) provider business is a company that manages logistics and distribution activities for other businesses. They typically provide a wide range of services such as warehousing, transportation, and distribution, and they act as an extension of their clients' supply chain operations.
The business model of a 3PL provider typically involves charging their customers a fee for the logistics services they provide. This fee can be based on several factors such as the volume of goods, the distance they are shipped, and the complexity of the logistics operations.
Some 3PL providers also offer additional services such as inventory management, packaging, and kitting, which can generate additional revenue. They may also charge additional fees for special services such as rush deliveries or special handling.
Typically, the revenue sources include:
Service fees: The primary revenue source for a 3PL provider is charging customers a fee for the logistics services they provide, such as warehousing, transportation, and distribution.
Volume-based pricing: Many 3PL providers charge based on the volume of goods they handle, whether it is by weight, pallet or container.
Accessorial charges: Additional fees for special services such as rush deliveries, special handling, packaging, kitting and other services that may be required for certain shipments.
Inventory management: Some 3PL providers may charge for managing inventory, including tracking inventory levels, reordering products, and coordinating deliveries to customers.
Supply chain management: 3PL providers may also offer supply chain management services, such as sourcing and procurement, and charge a fee for these services.
Consulting: Some 3PL providers may offer consulting services to help customers optimize their logistics and supply chain operations, and charge a fee for these services.
The expenses of a typical 3PL business include:
Employee costs: Wages, salaries, and benefits for warehouse workers, truck drivers, and management staff.
Equipment and supplies: The cost of logistics equipment such as trucks, forklifts, and warehouse machinery, as well as the cost of supplies such as packing materials and fuel.
Insurance: Liability insurance, worker's compensation, and other types of insurance to protect the business and its employees.
Rent or lease: The cost of renting or leasing warehouse space, office space, and vehicles.
Marketing and advertising: The cost of promoting the business to potential customers, including advertising, public relations, and website development.
Professional and legal services: The cost of hiring lawyers, accountants, and other professionals to help with business operations and compliance.
Travel and training: The cost of travel and lodging for employees who are sent to training or other events, and the cost of training programs and certifications.
Taxes: Business taxes, such as property taxes, and state and federal taxes.
Office expenses: The cost of office supplies, utilities, and other expenses associated with running the business.
Transportation cost: The cost of fuel, tolls, and other expenses associated with the transportation of goods.
The accounting for revenues, operating expenditures, capital expenditures, working capital, and depreciation for 3PL business is a little different from most companies that are into services because of differences in times frames of when expenses are recorded and when revenues are recognised. Capital expenditures are higher than a typical services business, and so is depreciation.
Revenue: Revenue is recorded when the 3PL provider bills their customers for services provided. This can include service fees, volume-based pricing, accessorial charges, inventory management fees, and supply chain management fees.
Expenses: Expenses are recorded as they are incurred, and can include employee costs, equipment and supplies, insurance, rent or lease, marketing and advertising, professional and legal services, travel and training, taxes, and office expenses.
Capital expenditures: Capital expenditures are recorded when the 3PL provider makes a significant purchase, such as a new warehouse or transportation equipment. These expenses are recorded as assets and depreciated over time.
Depreciation: Depreciation is the process of allocating the cost of capital expenditures over the useful life of the asset. This is typically done using a straight-line method, where the cost of the asset is spread evenly over its useful life.
Working capital: Apart from normal entries, the current assets of a such a business includes inventory that the business stores and manages on behalf of its clients. Current liabilities include cost of packing materials, fuel, and other supplies that are not yet paid for.