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3PL brokerage vs. freight brokerage: Which fits your needs?

A 3PL brokerage and a freight brokerage offer different services, so supply chain leaders should learn the differences between the two to decide which fits their company's needs.

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.

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