Transporting goods across national and international supply chains can be a complex process, so many companies choose to outsource their transportation to a freight broker or a third-party logistics broker.
These brokers each carry out different functions. A third-party logistics (3PL) brokerage offers warehousing, inventory management, order fulfillment and shipper services. Meanwhile, a freight brokerage focuses only on the transportation and shipping part of the supply chain and typically doesn't offer other types of logistics services. Some companies can benefit from a 3PL brokerage's wider range of services, while other companies' needs are met by a freight brokerage.
Here's more on each type of brokerage and what to consider when choosing one.
What is a freight broker?
A freight broker connects companies with the right carriers based on the broker's knowledge of carriers' varying availability, routes, pricing, modes of transport and capabilities.
A freight broker acts as the go-between for a company and a carrier and ensures that the correct agreements, expectations and communications are in place.
Advantages of working with a freight brokerage
Some benefits of working with a freight broker include the following:
- A freight broker serves as a single point of contact for transporting goods.
- A freight broker is an expert on freight pricing and availability.
- A freight broker has an established network of freight providers and knows the providers' capabilities.
- A freight broker carries out route planning, freight tracking and price negotiation on a company's behalf.
Freight brokers only focus on the transportation aspects of the supply chain, so if a company requires logistics services that go beyond transportation, then a 3PL broker may be the right choice.
What is a 3PL broker?
A 3PL broker offers a range of logistics and goods management options that go beyond freight brokerage. 3PL brokerage services vary depending on the scope of the 3PL company.
Services offered may include the following:
- A freight brokerage, similar to that offered by a freight broker.
- Receipt of goods from a port of entry or manufacturing center.
- Shipping of goods to warehouses for storage.
- Inventory management and replenishment.
- Order fulfillment, including picking and packing of products.
- Distribution of goods to wholesalers and retailers.
- Delivery to business or individual end customers.
- Customs brokerage, import and export of goods across international borders.
- Supply chain optimization and logistics services consulting.
Clients can choose the end-to-end logistics option or select individual services that fit their requirements.
A 3PL broker takes possession of goods on a company's behalf and can manage products through the entire logistics chain, from initial pickup and goods receipt through final distribution to end customers.
Advantages of working with a 3PL brokerage
Some helpful aspects of working with a 3PL broker include the following:
- A 3PL brokerage provides account management and a single point of contact for all logistics needs.
- A 3PL brokerage provides complete, end-to-end management throughout a logistics lifecycle.
- A 3PL brokerage provides a range of core and value-added logistics services that companies can use if needed.
- A 3PL brokerage provides order management, from receiving orders and inventory control to picking, packing and distribution.
- A 3PL brokerage provides logistics optimization, from network design through to innovation and automation.
A 3PL broker's additional services cost extra, so while 3PL brokers are often a cost-effective way to outsource a company's logistics requirements, supply chain leaders should be sure they understand agreed-upon services.
What are the differences between a 3PL broker and a freight broker?
The main difference between these two types of brokers is the range of services they offer. Freight brokers focus only on working with a company and a carrier to transport the company's products. 3PL services are much more wide-ranging and include inventory management, order fulfillment, warehousing and distribution.
Supply chain leaders should consider the following questions when deciding which type of broker will fit their company's needs:
Does the company have in-house logistics?
If a company has in-house logistics, it probably doesn't require the full range of a 3PL broker's services.
However, if a company doesn't have in-house functions, it will likely require much more than just transportation. If so, the company can work with a 3PL broker to define service requirements.
Does the company need order fulfillment services?
3PL brokers are a natural choice for order fulfillment. However, if order fulfillment isn't part of a company's business model, then a freight broker could be a better choice.
Does the company have a tight budget?
End-to-end 3PL services can be costly, so if a company has a limited budget, starting with a less expensive freight brokerage service may be a better option.
Does the company want to increase its logistics outsourcing as the organization grows?
A company can start small with freight brokerage, then expand into 3PL brokerage and add on services if needed.