The Differences Between Long-Term 3PL Partnerships and Short-Term Contracts
Senior Vice President,
Phoenix Logistics
[email protected]
phoenix3pl.com
920-915-9746
With volatility becoming the norm in the supply chain, shippers have begun reevaluating their third-party logistics (3PL) providers. Here’s how to choose the right 3PL model.
Some shippers may find that more basic relationships with logistics partners are no longer sufficient, as businesses increasingly rely on 3PLs for agility and flexibility.
Long-term strategic partnerships and short-term agreements with 3PLs both have their place, but serve different purposes. Understanding the differences can help shippers better align their outsourcing model with business goals.
What Is a Short-Term 3PL Contract?
Short-term 3PL contracts are inherently execution-focused. A shipper engages a 3PL to address a specific, often time-sensitive problem. Speed and cost are often the primary factors that rule short-term 3PL agreements. Responsibilities and service-level agreements (SLAs) will be narrowly defined to expedite onboarding timelines.
However, the brief nature of these relationships also means the 3PL is unlikely to gain a deep understanding of the shipper’s business or long-term roadmap. Also, there is very little time to optimize processes or streamline workflows.
What Is a Long-Term 3PL Partnership?
Conversely, a long-term 3PL partnership is built around shared goals, mutual investment, and continuous improvement. Both parties collaborate on an ongoing basis to continually streamline processes and costs.
As a more strategic engagement, a long-term 3PL partnership will likely include a multi-year agreement, technology integrations, shared data, and joint planning sessions. The 3PL gains a thorough understanding of the shipper’s products, customers, and growth strategy, enabling it to make proactive recommendations for improvement rather than simply reacting to issues. This stability also allows more substantial investments in automation and infrastructure that wouldn’t otherwise make sense.
When Shippers Should Seek a Short-Term 3PL
While a short-term 3PL arrangement has its limitations, these are by design and do not necessarily make it inferior to a longer-term agreement. It can often be the right choice when issues exceed the shipper’s existing logistics capabilities. For example, a business might need help with:
- Highly unpredictable demand due to a supply chain disruption.
- Seasonal demand spikes.
- Testing new markets or sales channels.
- Mergers, acquisitions, or facility changes that place internal capabilities in flux.
- A situation where speed and flexibility are more important than cost.
When Long-Term Strategic Partnerships Have More Value
A long-term logistics partnership makes more sense when the shipper wants to make the 3PL a core part of the organization’s logistics strategy. The 3PL becomes more like an extension of the shipper’s operation. These types of engagements are especially valuable when:
- A shipper wants to make logistics a competitive differentiator.
- Customer experience is heavily tied to fulfillment performance.
- The business is on a growth trajectory.
- The shipper is undergoing a digital transformation that requires the 3PL to integrate technologies and share data.
- Supply chain resilience is a high priority.
Choosing the Right 3PL Model
The decision is not always clear-cut. Many organizations even maintain core long-term partnerships while leveraging short-term providers to manage variability.
Ultimately, the right choice depends on how critical logistics is to your business strategy. For companies that want to quit reacting and move toward a proactive and strategic operation, investing in a long-term 3PL partnership can deliver value beyond the four walls of the warehouse.