When shopping around for a logistics provider for your shipping needs, many folks come across two terms- “Third Party Logistics Provider” and “Freight Broker.” While both can provide similar services, there are some key differences between the two. This is how third party logistics providers and freight brokers are different:
What does a freight broker do?
Individuals or companies with freight broker licenses are service providers that act as liaisons between shippers and carriers. Freight brokers are kind of like the matchmakers of the supply chain.
Freight brokers are valuable to both parties. To carriers and service providers, brokers bring in business and commission. To shippers, brokers offer a network of service-specific providers, which adds flexibility and leverage in coordinating supply chain management.
Freight brokers don’t own their own physical assets like equipment or means of transportation, so they purchase services from logistics service providers (LSP). A broker’s provider network is made up of these providers and the reliability of that network is a broker’s primary intangible asset. Brokers coordinate the shipments with providers but never take possession of the shipper’s goods.
Companies often find it useful to establish a good relationship with a freight broker if they have inconsistent or infrequent shipping needs. Because freight brokers are usually used on an as-needed basis, they aren’t involved in a company’s overall supply chain management.
What does a 3PL do?
Third party logistics providers, or 3PL, provide the same services freight brokers do and then some. More so than freight brokers, 3PLs assume more of an involved role and offer services for segments- or all- of the supply chain.
Because they vary in the types of assets they own and what in-house services they offer, 3PLs are known to be uniquely flexible when meeting the needs of customers. The 3PL model gives the provider agency over business decisions, like choosing core competencies or asset ownership. A provider’s flexibility is directly related to their ability to meet a company’s needs.
Unlike freight brokers, 3PLs typically foster long-term customer-provider relationships. Rather than individual freight brokers, 3PLs offer a team of experts to create solutions throughout your supply chain.
3PLs use the best technology in the industry because they rely on cloud-based management systems to communicate with all parties. 3PLs use optimized IT for things like freight, warehousing or courier services. Providers also rely on their software for customer self-service, like client portals or EDI.
3PL or freight broker?
Both 3PLs and Freight Brokers are service providers that outsource services and invest heavily in skilled labor and industry expertise.
When deciding between a 3PL and freight brokers, consider the logistics of your needs- shipment size, frequency, contract length, and the like.
But as always, the logistics service provider with transparency and exceptional communication should be a deciding factor. Shipping failures are inevitable with every provider and ultimately you want to be able to trust them to handle them when they happen.
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