What is a Logistics Service? Types, Costs and How to Choose

Logistics services ease the burden of moving goods from business-to-consumer (B2C) or business-to-business (B2B) at the right price, time, and place. In 2022 alone, 928 million global packages were shipped daily. 

Supply chain interruptions, higher shipping costs, issues at customs, and managing all elements of operations can be challenging for businesses to handle in-house. A logistics service can take on this burden, allowing companies to focus on core tasks.

Businesses across a wide range of industries rely on these logistics solutions to:

• Save time
• Reduce costs
• Improve delivery time
• So much more

If you’re not using a logistics company to help strengthen your supply chain, the guide below will explain why it’s time to reconsider.

What is a logistics service?

Your supply chain has multiple elements that logistics solutions streamline to meet the seven R’s of logistics:

1. Right product
2. Right customer
3. Right price
4. Right quantity
5. Right condition
6. Right time
7. Right place

Logistics services include all elements from the factory to delivery. Third-party logistics (3PL) and fourth-party logistics (4PL) combine into full logistics service providers to optimize the flow of goods through the supply chain.

Partial or full logistics management is possible with:

• 3PL: A 3PL provider starts at receiving and offers warehousing, packaging, and shipping. 
• 4PL: A 4PL provider is more of a consultant because they’re experts in fulfillment, but they rely on 3PLs or other providers. For example, a 4PL may contract with a 3PL for warehousing, LTL or air freight providers, packaging companies, and couriers through strategic outsourcing.

A logistics service allows businesses to work with one logistics company that seamlessly integrates 3PL and 4PL together.

If you’re unfamiliar with common logistic jargon, read our A to Z guide, which covers many terms, advantages, and disadvantages.

Who uses logistics services?

Businesses across a variety of sectors use logistics services to provide supply chain solutions that focus on optimization for freight forwarding, inventory management, receiving, warehousing, packaging, organizing shippers, and more.

Custom solutions are often available to focus on supply chain management for each individual business.

Who uses logistics services?

• E-commerce companies
• Retailers
• Manufacturers
• Automotive companies
• Pharmaceutical companies
• Many others

For example, an e-commerce company may rely on these logistics experts when shipping products overseas. The service provider will handle shipment routing from distribution centers to the nearest port.

A freight forwarder may be chosen to ship the product and handle the paperwork that is necessary for the product to enter another country. Then, upon arrival in the destination country, the forwarder will secure transportation services through 4PL services.

3PL services may be used for local fulfillment, using a service like UPS, FedEx, USPS, or DHL.

Logistics services can manage inventory, too. If inventory for a certain item is moving faster than expected, the provider can notify you that reordering is necessary to maintain current demand. 

Multiple types of logistics services exist, allowing businesses to offload complex logistics and focus on core tasks instead. Partnering with the right provider will improve efficiency, customer satisfaction, and cost savings.

12 types of logistics services

Logistics management falls into domestic and international services. Both types of services coordinate the movement of goods, but international is more in-depth.

Domestic services

The scope of operations for a domestic logistics service involves the movement of goods through a single country. Domestically, these services may include:

• Compliance with local requirements and regulations
• LTL transport, air, rail, or other models of transportation
• Warehousing of goods through 3PL
• Shipping and delivery to the end consumer
• Inventory management and planning

International services

An international provider may include many of the above points, but services may also involve:

• Documentation to move products through customers
• Working with domestic and international freight forwarders
• Warehousing of goods

Specialized services may be available, often as an add-on, to provide a full solution.

Specialized services

Logistics services can include:

1. Freight services and forwarding
2. Warehousing 
3. Inventory management
4. Courier shipping
5. FTL / LTL shipping
6. Return processing
7. Cargo handling
8. Port services
9. Packaging
10. Customs clearance
11. Tracking and monitoring 

Companies can choose from multiple services to use the ones they need and omit those they do not. 

Major logistics companies

B2C and B2B companies across the world offer enterprise to small business shipping options to the tune of 900+ million shipments each day. Top logistics companies include:

• FedEx: The company is known for multiple types of shipping and has a network that helps with custom shipping solutions, air freight forwarding to 220+ countries, LCL, and FCL shipments.
• United Parcel Service: UPS is known for its last mile delivery solutions with USPS, but the provider offers supply chain solutions that include warehousing, distribution, customs brokerage, and more.
• DHL Supply Chain & Global Forwarding: DHL supports 167,000 customers daily, with a strong focus on ocean and air freight.
• XPO Logistics: XPO moves 13 million shipments via a linehaul team annually. They offer freight flow management in real-time, dynamic pricing, shipment and tracking management, and more through their 293 service centers.

A logistics service can save a business time and money while strengthening the supply chain. Costs will vary based on the extent of the services needed, shipment volume, and other variables. Let’s explore costs a little further in-depth.

How much do logistics services cost?

Working with a logistics company has many advantages, but like anything else in business, pricing is always a concern.

After all, what good is a third-party logistics service (3PL) if it doesn’t fit into your budget? 

The good news is that, generally, you only pay for what you use when working with a 3PL provider. Most offer variable plans, although some do have flat fee pricing or pricing by the bin, shelf, or pallet.

Let’s look at some of the cost categories in logistics and how they’ll impact the pricing of services.

Inbound goods 

This cost category refers to the costs associated with receiving inventory from your supplier. These are your inbound goods logistics costs.

Each step of the inbound process has its own costs, which include:

• Shipping: The fees charged by shipping services to send you the materials or items you need. These costs should be at freight shipping volumes when possible.
• Labor: The wages paid to workers for receiving the goods, checking orders, and stocking products on shelves. 

When outsourcing these activities, you may incur additional costs based on how many products you’re receiving.

Pricing may be:

• Per pallet
• Hourly
• Per unit
• Per box

In many cases, fees are based on the characteristics of the product. For example, the cost of receiving a chair would be different from that of a hair product.

Inventory storage

Once your inventory arrives at the warehouse, it will likely remain there for some time. Storing your inventory will come at a cost, and for many businesses, these costs account for 50% of their 3PL fees.

Storage fees will depend on a number of factors, including the size and location of the warehouse. Many 3PL providers will need you to maintain a certain inventory level and pay for the physical space it occupies.

In the U.S. and Canada, most fulfillment centers charge either per pallet or per bin per month.

Pick and pack

Some of the most labor-intensive aspects of warehousing services are pick and pack actions. Because they can vary so greatly, these costs are highly variable. 

3PL providers don’t charge for labor costs directly. Rather, fees are based on the number of products you’re storing, units per order, product weight and size, and other finishing touches you need. For example, if you have unique packaging requirements or want to add branded elements to your packaging, these will come at additional costs.

Packaging materials are typically not included in these costs.

Order fulfillment and shipping 

Along with the costs we’ve covered so far, you’ll also incur fees for order fulfillment and shipping goods to your customers, including last mile delivery costs.

Here’s one area where 3PL providers can save you money. They can:

• Give you access to lower carrier rates
• Help you store items in multiple locations for faster shipping at lower prices

If the provider has warehouses in several locations, you can split your inventory to move products closer to customers.

Technology and account management fees

Some providers charge a technology fee, which can range from USD$100 to USD$500 per month or more. This fee covers the cost of the logistics software and systems used for order management, inventory tracking, and other operations.

Account management fees may also be charged. These fees are not related to operational costs, but instead, cover the cost of account-related tasks, like planning, reporting, billing, etc. Some companies will even provide support to your customers for questions related to their orders and shipping.

Providers may charge a flat fee for account management, or they may charge by the hour.

Reverse logistics

When customers return items, your 3PL will charge a return fee, which covers the cost of:

• Performing a quality check to see the condition of the item
• Returning the item to the inventory or sending it to an isolated location

These handling fees are usually charged on a per-item basis. 

As you can see, 3PL pricing is complex and multi-faceted. But more often than not, businesses save time and money by using a logistics service.

How to choose a logistics service

Choosing a logistics service can be challenging. After all, there’s a lot on the line, including your reputation. 

An unreliable provider can taint your image and negatively impact consumer trust.

It’s important to weigh your decision carefully and consider several factors when comparing providers.

Here are a few important things to keep in mind.

Capabilities and areas of expertise

Most logistics providers have certain areas of expertise. These could be warehousing, transportation, or shipping and receiving. 

Look for a provider whose capabilities and specialties align with your own needs. Consider your future needs as well. You may not need a particular service today, but will you need it 12-24 months from now? If so, will that provider be a good fit?

Choose a company that you can grow with and will serve as a long-term solution for your business.

Reliability and reputation

Reliability is one of the most crucial things to consider when choosing a logistics provider. Their reputation can give you plenty of insight into their reliability. 

How long have they been in business? What are customers saying about their experiences with the provider?

Companies that have been around for many years will know the industry inside and out, and they’ll also know how to overcome any challenges that may arise along the way. 

While you’re researching the company’s history and track record, take the time to check online reviews and testimonials. 

The quality of packaging and delivery

Offloading the packaging and delivery of your products to a third party will save you time, but will that time savings be worth it if your orders are not processed properly?

If orders are sent to the wrong address or don’t arrive on time, it will impact your company’s reputation. 

Check to make sure the company trains its staff to fulfill orders accurately. 

Technology and efficiency

Today’s consumers expect fast deliveries. Can the logistics provider meet this demand? How efficient are their operations?

Consider their technological capabilities and unique selling points that may appeal to customers. For example, do they specialize in green logistics? 

Companies that leverage the latest technology and offer fast delivery will help improve customer satisfaction while saving you time and money on logistics.

What’s the difference between logistics vs. transportation?

At the base level, the terms logistics and transportation refer to the same thing — the movement of goods from one place to another. But in the supply chain, they are two very different concepts.

• Transportation refers solely to the transport of goods from one point to another.
• Logistics services, on the other hand, include both the movement of goods and everything that goes along with it — the planning of transportation, warehousing, distribution, last-mile delivery, and other related processes.

Logistics management has many moving parts, whereas transportation refers purely to the function of moving items from one location to another. Think of transportation as a part of logistics. The two go hand-in-hand, and unless we’re talking about the movement of people, you can’t have one without the other.

Final thoughts

Logistics services help businesses manage inventory, order fulfillment, and shipping. From inbound goods to picking, packing, and shipping, these service providers can handle a number of tasks that are costly to manage in-house. Understanding the costs of these services and how to choose a provider can help you find a partner that you can grow and scale with in the months and years to come.