The first thing a potential 3PL customer has to understand is how each 3PL prices shipping, how shipping accessorial charges are added and how shipping pricing changes year over year.
When you start shopping for a new 3PL, you'll quickly find out that they all price in different ways. There is definitely a margin preservation strategy in this, but there are also different ideologies around how to price in order to manage the business well, court the right customers, or motivate the ideal customer behavior.
One thing often missed by customers (the brands) is the variation in how the fulfillment center prices outbound shipping (i.e., using the 3PL's UPS, FedEx, USPS accounts to ship your packages). Depending on the product, shipping typically accounts for 50-70% of the total 3PL costs.
Many fulfillment centers offer pricing on labor and storage-based fees that appear to b- straightforward and low-cost. Most often, they do this to shift margin away from these easier to-compare elements, while adding margin opportunities to their shipping costs.
If you’ve managed your own direct account with a shipping carrier, you know the pricing is complex and accessorial fees (fees added to the base rate) can drastically increase final invoices. How a fulfillment center passes through this complexity to a customer and the fees associated with shipping packages will make or break the financials of an e-commerce brand.
Before signing any agreement, you need to know how they price shipping and how they bill for accessorial charges, as well as understand how annual price changes from the carrier will affect your pricing with the fulfillment center. Carriers increase prices almost every year, and that's an opportunity for a 3PL to change up its own pricing on the customer. They may have originally had aggressive shipping prices that got an e-commerce brand in the door, while all along planning to increase their own margin later during the annual carrier price increase, blaming the increase on the carrier. 3PLs know that once a brand is in their fulfillment center, the opportunity costs of leaving are high for the brand, which they can use to their advantage. You'll never have more negotiating power with a potential 3PL partner than before you ever move in.
Having trouble understanding your 3PL's contract or invoices? Email Ship Simply to see how we can help.