Choosing the lowest-priced 3PL without researching their fees can often lead to disaster.
For example, multiple users on Reddit offer reviews about one well-known provider that advertises low costs, later double-billing them for surprise fees. You can find much of the same for almost any major 3PL provider on the market.
Why is there so much cloak-and-dagger over 3PL fees? How exactly do 3PLs decide their costs? And what can you do to make sure that you don’t see a surprise bill from a business you thought was a good deal?
At OTW Shipping, we’re a US-based 3PL warehousing and fulfillment service, therefore we're intimately familiar with how 3PLs do pricing. We’re confident we offer some of the fairest rates and most flexible services on the market. And we think once you understand how we do our job, you’ll agree.
That’s why we’re giving away the master plan for how our industry does pricing. Read on if you want to come prepared to negotiate your next contract and understand if you’re truly being offered a good deal.
Factors The Affect 3PL Warehouse Pricing
Below are some common elements warehouses consider when deciding prices.
🤔 Remember, 3PLs only operate efficiently when they can easily use the same fulfillment processes for all of their customers. Generally, anything about your orders that makes them more difficult for your 3PL to fulfill or require custom operations will up your costs.
Storage Fees
Here are some terms you need to be aware of:
Per-pallet or per-bin fees are based on the number of pallets or bins you have requiring storage.
Per-cubic foot fees are based on the amount of warehouse space your goods occupy based on the dimensions of your products.
Long-term storage fees are applied when goods are stored for longer than a certain amount of time.
Generally speaking, each SKU will have at least one “pickable” location. That’s normally a bin, but it could also be a pallet for larger products. Excess inventory is normally stored on shelves or pallets and is restocked into the “pickable” location when it’s running low. Smaller products that require less frequent restocking and can be picked from bins are more efficient for a 3PL, and thus lower cost.
At OTW, we charge per pallet or bin your product takes up in our warehouse.
📝 Another note on storage: 3PLs like to have a larger percentage of goods closer to just in time (JIT) inventory to minimize how much space goods are using. We don't make our buck on storage, so if you are storing 6-12 months worth of inventory at a time, your bill will be high and you'll be less likely to get competitive rates.
You should also check with your 3PL regarding seasonal storage. There may be higher rates during peak season when unused warehouse space becomes scarce.
Handling Fees
High-level, these are the categories of fees you can expect from your 3PL for handling your goods.
Receiving fees are the charges for receiving, unloading, and inspecting goods as they arrive at the warehouse.
Your 3PL may also offer value-added services, which can include kitting, assembly, labeling, or repackaging.
Finally, they’ll also charge pick and pack fees - more on that in a moment.
💸 Money-saving tip 💸
Labeling or kitting your own goods ahead of time via your supplier will be cheaper than using a 3PL. Orders you’ve already put together or packed in bubble wrap are easier for your 3PL to pack. Orders that don’t need an additional box, just a shipping label, can offer some good discounts from your 3PL as well.
However, pre-kitting can increase inbound costs and isn’t always possible if your goods are coming from a lot of different suppliers. So, depending on your volume and packaging needs, it may be more cost-effective for your 3PL to do your kitting for you.
OTW offers bubble wrap and kraft paper packing for fragile products, but dunnage requirements impact pricing, so be sure to bring up these possibilities when discussing your contract.
Pick and Pack Fees
We’re going to go a bit more in depth on pick and pack here. Generally, you’ll get billed for this part of the process in two ways:
Per-order fees involve a flat fee for each order processed. That means if a customer orders multiple items in one order you’ll only receive one rate.
Per-item fees are charged for individual items picked and packed for an order. These are often combined with Per-order fees. Certain special handling requirements may add additional fees (two items need to be placed side-by-side in a specific manner, etc.).
You’ve probably come to find, not all 3PLs are priced the same. Pick and pack fee models may vary by provider. However, comparing pick fees between providers is often like comparing apples to oranges. You should mainly be concerned about the total cost to fulfill which we will touch on more later.
How Can You Get the Best Pick and Pack Rates?
To get the best rates, give your 3PL as much data as you can and be honest with them.
Order level data will tell them immediately if you are exaggerating order volume and could result in unexpected rate increases if you’ve already signed. They should be able to extract the information they need from an order export to get you the most aggressive rates they can.
Try to simplify things as much as possible. You don’t need four different custom box sizes and three inserts. If you sell canned beverages and now you want to sell hats, talk to your 3PL first.
Shipping hats with heavyweight beverages is more complex than you would think because you don’t want to damage the hat (for example)!
Factors Related to Your Goods That Affect Your 3PL Pricing
Variability in Size/Packaging Type
If your products vary greatly in size or packaging needs, it’s harder to simplify the packing process and can lead to further expense.
Using a box that is bigger than necessary, for example, could increase your postage costs. Boxes take longer to pack than mailers. If you require bubble wrap or kraft paper to protect your product, that material has a cost and adds time to the order.
Number of SKUs
The number of stock-keeping units, or SKUs, involved in your order can impact pricing as well. High volumes of orders consisting of the same item can be “bulk shipped” and handled in a batch which is more efficient. The more SKUs you have, the less likely that is to happen.And since each SKU gets its own bin in the warehouse, the more SKUs you have, the more warehouse space you take up. For multi-SKU orders, This means more walking and more unique picks for the picker which takes more time.
Number of Units Per Order
This is pretty straightforward for most 3PLs. The more units you have in each order, generally the lower per item pricing a 3PL can offer. This becomes more complicated if there are multiple SKUs in each order.
Number of Orders
Higher order volume means more opportunities for the 3PL to “bulk ship” or at least have more orders that can be grouped together and picked at the same time which is more efficient.
Other Factors
As previously mentioned, anything that makes your pick and pack flow unique, makes it more expensive.
Things like custom packaging or custom tape takes up limited space at pack stations, and your order will need to be routed to specific pack stations to be packed.
Inserts are less of an issue, but you’ll still have to pay for them.
If you do lower volumes, 3PLs will be less excited to offer flexibility as the return may not justify the added overhead. Custom packaging is expensive and generally something to explore once you’ve gotten some initial traction and can place higher MOQs without compromising your margin.
Factors Related to 3PL Internal Operations That Affect 3PL Cost
Shipping Fees
Freight costs are fees are charged for transporting and delivering your goods to customers
Shipping supplies costs include prices for boxes, packing materials, address labels, etc.
These shouldn’t really be negotiable, but your 3PL will normally negotiate substantial discounts with carriers to bring their freight costs down.
Finding a partner with strategic locations to identify where to put your product to achieve the lowest postage costs is huge. If your 3PL can’t run an analysis with real order data to get you a more accurate idea of your fees (including surcharges), you’re not getting the full picture on your postage fees. At OTW, we pass that discount on to you and run an analysis on your actual order data to see more precisely what your per order costs would look like.
🚨Beware of rate sheets that do not include all surcharges🚨
DAS/EDAS fees can add over $8 per package, for example.
Technology Fees
Some examples of technology fees you can expect from a 3PL include:
System integration fees. These involve connecting your 3PL’s warehouse management system (WMS) with your ecommerce or enterprise resource planning (ERP) system for effective order communication.
Software access fees. These are usually an ongoing subscription for using the 3PL’s software and reporting tools.
Your 3PL may charge at a cadence of:
A one-time fee upfront for system integration for more complex integrations
Monthly or yearly payments for maintaining integrations
A combination of both
Those costs generally tend to be higher if the 3PL has developed their own WMS. At OTW, our integration fees are minimal and are passed through at cost from our WMS provider, so you’re only paying what we pay.
Account Management Fees
Watch out for monthly fees your 3PL charges for maintaining your account. If your needs are complex or you scale fast, you might be giving an employee a sleepless night or two! These are usually included for services like:
Offering customer service to clients
Basic reporting
Offering general support to your business
Our team at OTW invests deeply into account management, with a desire to feel like your own personal warehouse team. Our in-warehouse contacts and account representatives on your account are included free of charge.
Additional Fees
These are some common additional fees you can expect from 3PL warehouses:
Hazardous and complicated materials handling. There can be complex labelling, packaging, and storage requirements for things as simple as perfumes. Many 3PLs will take on simple products, like ones that contain batteries. However, most 3PLs prefer not to take more unique hazardous materials and will instead refer you to one that specializes in them.
Minimum fees are small minimum monthly payments made so you can maintain service.This helps a 3PL break even on your orders if you are not reaching a necessary order volume.
Should You Be Worried About Low-Priced 3PLs?
Many businesses that bill themselves as “low-priced” often offer limited services and don’t guarantee results.
A low-priced 3PL may also cut corners and is more prone to mispicking orders or losing inventory, which can then lose you customers.On top of that, many bottom-of-the-barrel 3PLs are unprofitable and struggling financially. The last thing you want is to be with a 3PL partner that goes out of business with your inventory stuck inside for weeks or months.
During COVID, warehouse space was in incredibly high demand and many groups overbought. When this happens, these same 3PLs often dangle low rates and long-term contracts to get customers in the door covering concrete in their new warehouse. But once your business is locked into a contract, they can skyrocket the rates the following year
Thoroughly read and carefully consider contract terms before signing. If you’re just starting out, ask how pricing might change as your company grows. You should look for a volume-based pricing structure to decrease your costs as you grow. You may also require more complex services such as retail distribution as you expand.
Make sure you are thinking about the next 3-5 years, not the next 12 months when choosing a 3PL. Your 3PL should be prepared to engage with you every step of the way and work with you to determine how best to serve your company’s needs.
Want a 3PL That’s Transparent About Pricing?
At OTW Shipping we’re confident we can offer your business some of the most competitive services on the market at a great rate.
Most 3PLs treat client relationships like transactions. We designed our business to feel like in-house fulfillment for your business. We want to give your growing ecommerce brand the same service large brands receive every single day!
When you ship with OTW, you get:
99.99% order accuracy
Transparent rates and custom quotes to fit your needs
2-day ground shipping to over 90% of the US
Access to a Slack-like channel where you can chat with our team directly
State-of-the-art warehouse management software
And much more
Are you interested in a quote? Get your personalized rates now.
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