When choosing a third-party logistics (3PL) company to work with on your supply chain needs, the first major decision is to know whether you want to work with an asset or non-asset based 3PL. These are two, very broad categories when it comes to logistics service providers. Once you have decided, you can narrow down your pool of candidates and start looking into more detailed features that will fit your company best.
In this article, we will review the differences between asset and non-asset based 3PL’s and the advantages and disadvantages of each.
An asset based 3PL owns parts or all of the assets necessary to implement and manage a customer’s supply chain. These assets can be trucks, warehouses, distribution centers, and more. This can be appealing to a client that is looking for a logistics company to completely take over their supply chain.
These companies are often regarded as more stable because they have made major investments in the future and long-term operation of their company.
A non-asset based 3PL, on the other hand, does not own the assets needed to run a supply chain. Rather, a non-asset based company focuses heavily on expertise and experience, not hardware. Since they do not have major assets to manage, they can focus their energy on innovative and personalized supply chain solutions.
In the past, non-asset based companies were often viewed as risky due to their ability to easily close up shop, leaving the customer high and dry since they had no solid investment made. This was rectified when Map-21 passed, requiring a $75,000 freight broker surety bond.
When a company owns assets such as warehouses or trucks, they are limited to their own solutions and often times can’t customize them to fit your needs. A non-asset based 3PL can identify the areas of your supply chain that need some work, and then design solutions around those needs on a case-by-case basis.
In addition, non-asset based 3PL’s are often at the forefront of technology, coming up with automated solutions to increase the efficiency of your supply chain while simultaneously reducing overhead.
When working with an asset based logistics provider, there are a few areas where there can be major conflicts of interest. The first is when the 3PL owns their own trucks. Now, you are using their transportation rates solely rather than bidding out freight to identify the best carrier with the best rate.
The second area this arises is with your freight auditing. The reason that freight auditing is so important, is because more times than not, there is an error on your invoice that costs you money. If the person auditing your invoices is also the person benefiting from these overcharges, the waters can get a little murky.
Next up is, freight claims management. We all know that LTL shipments are at a higher risk for damage due to a number of times the product is handled, so you want to make sure whoever is handling your freight claims has your best interests at heart. When the damages are incurred by an asset-based 3PL’s own carriers, this means they take a hit, again making trust a huge factor.
Lastly, non-asset based 3PL’s have a disadvantage as well. If you do now own assets, and your 3PL doesn’t own assets, the 3PL will then outsource these responsibilities to another company. This means more hands in the pot, which can get tricky to keep up with.
Overall, there are advantages and disadvantages to both types of third-party logistics companies. At the end of the day, you have to decide what is the best fit for your company and its needs.
Once you’ve decided which way to go, check out this article on how to choose a third party logistics company that’s right for you. If you are interested in learning more about how LTX, a top non-asset third party logistics provider can help increase your bottom line and decrease your overhead, click on the contact us button below and we’ll be in touch!