Contract logistics: What is it and who benefits from it?

Any business entity is always focused on maximising cost optimisation and improving operational efficiency. However, increasing the vehicle fleet, maintaining a warehouse, and training additional staff is always an investment that must be in line with the company’s budget. In addition, such ways of optimising own logistics require a complete understanding of how to organise them as efficiently as possible. In this case, outsourcing logistics elements may be the best solution for a business that not want to invest in developing its own logistics system. This is what is known as contract logistics.

What is contract logistics?

Contract logistics, also known as third-party logistics or 3PL, is the transfer of control over material flows to a third-party organisation. A specialised company, to which logistics issues are delegated, usually provides a range of services of the same nature. These include cargo storage, transportation, customs clearance, transport selection, and logistics route development. To provide a full range of services, the company has its own infrastructure, including warehouses, the necessary equipment for their operation, a vehicle fleet and the necessary software.

What are the benefits of contract logistics?

Resource savings are undoubtedly one of the biggest advantages of outsourcing logistics. Not only potential costs for maintaining own logistics structure, but also time are saved. However, there are other benefits:

1. Prospect for business scaling. When a company does not need to handle logistics issues on its own, it can focus on higher-priority aspects of its professional activities, such as marketing. A logistics service contract automatically solves a large number of potential issues.
2. Comprehensive approach to logistics issues. Full control over the transportation of goods makes it possible to ensure processes parallel organisation and combination. This directly increases the speed at which goods are delivered to the end consumer.
3. Improving the quality of service. In addition to solving logistics issues, some companies also offer their own customer service services. This approach makes it possible to get relieved and more effectively interact with consumers. This, in turn, has a positive impact on the reputation of the business.

When contract logistics can be an unprofitable management solution

Not every business entity needs to engage a separate outsourcing company. If the company’s own logistics system does not require too complex operations or if the company sells its own goods via the same sales channels, cooperation with a third-party organisation will not be economically feasible. In such situations, it makes sense to invest in own logistics. This will allow you to independently control the transport and storage of goods.

So, should you switch to an outsourced logistics system? Each company has to make its own conclusions on this issue. It’s worth remembering that this industry is still developing in Ukraine, which means that the number of service providers is limited. Nevertheless, contract logistics can be a great solution for a newly established company that wants to save time on developing its own logistics system.