What is a 3PL? The complete guide for Canadian and U.S. brands

Handing your logistics to another company is a big decision: your products, your delivery times and, ultimately, your customers’ satisfaction depend on it. Yet many brands choose a 3PL by comparing a single price per order.

This guide brings together what we most often explain to the brands that contact us: what a 3PL is, the services it provides, how it prices them, how to compare providers, which questions to ask, the red flags to watch for, how onboarding works and which KPIs to track. It is written for ecommerce brands, manufacturers and distributors in Canada and the United States, whether they sell to consumers, to retailers or both.

These acronyms describe how much of your logistics you hand over:

• 1PL: you do everything yourself, with your own warehouse, your own staff and sometimes your own trucks.
• 2PL: you hand over transportation only, to a carrier such as Canada Post, UPS or a trucking company, but you still run the warehouse.
• 3PL: a partner runs warehousing, order fulfillment and shipping, and coordinates transportation with its carriers.
• 4PL: an integrator manages your entire supply chain, often coordinating several 3PLs and carriers, without necessarily operating warehouses of its own.

For most small and mid-sized brands selling online or to retailers, a 3PL is the best fit: it takes over the physical operations while you keep the business decisions.

Why do so many brands hand their logistics to a 3PL? The same reasons come up again and again:

• Variable costs instead of a fixed lease, equipment and payroll.
• Negotiated shipping rates based on the volume of many clients. Kolineo clients save 28% on shipping on average.
• Faster, more reliable shipping, organized around daily carrier pickups.
• Space that flexes with your seasons, with no multi-year lease.
• Technology included: warehouse management system, integrations, real-time tracking.
• Time for your products, sales and marketing.

Our article on the 10 benefits of a 3PL covers each point in detail, along with the trade-offs to keep in mind.

Most 3PLs charge by activity. Here are the main fees, with the ranges commonly seen in the Québec market, in Canadian dollars before taxes:

These ranges are not Kolineo’s rates; they are meant for budgeting. Shipping comes on top, based on the weight, dimensions and destination of each shipment. Three pricing models are common:

• Activity-based: each task is billed separately. It is the most transparent model, as long as you read the rate sheet carefully.
• Flat fee per order: one price covers picking and sometimes packaging. Simpler, but check what is excluded.
• Dedicated space: rent per square foot for a reserved area, plus activity fees. This suits large, stable volumes.

Also check setup fees, monthly minimums and long-term storage fees. For a full worked example, read our article on fulfillment costs in Canada, or get a range based on your own volumes with our 3PL cost calculator.

Some products call for precautions that not every 3PL handles the same way. Raise them at the very first meeting:

• Food and beverages: expiry dates, stock rotation (first expired, first out), lot numbers, heavy formats such as cases of cans.
• Cosmetics and beauty: fragile items, gift sets, careful presentation when the parcel is opened.
• Health products: lot traceability and the regulatory requirements that apply to your products.
• Apparel: many sizes and colors, frequent returns, fast restocking.
• Heavy or bulky products: handling, palletizing, choosing between parcel and LTL.
• Retail orders: compliance labels, delivery appointments, pallet builds that follow each retailer’s rules.

To compare 3PLs industry by industry, see our checklists for choosing a food 3PL, a beverage 3PL, a cosmetics 3PL and a pet products 3PL in Québec.

Ask for concrete examples of similar products already handled, and have the process described step by step. Our industries page covers the sectors we know well. Do you have specific requirements, such as lot traceability? Let’s talk about them.

Your contract with a 3PL frames the whole relationship. Before you sign, read these points carefully:

• Term and renewal: initial term, automatic renewal, required notice.
• Service levels: the KPIs tracked, the agreed targets and what happens if they are missed.
• Rate sheet: every fee, its billing unit and how rates can be revised.
• Liability and insurance: who insures the goods in storage and in transit, and within what limits. Check your own policy too.
• Data ownership: your access to inventory and order data, during the contract and after it ends.
• Exit: notice and fees to pull your inventory out if you change providers.

A clear contract protects both sides and avoids misunderstandings on the day something needs to change.

A 3PL relationship is managed with numbers. Agree upfront on the KPIs you will track, how they are calculated and how often they are reported:

• Order accuracy: the share of orders shipped without errors. At Kolineo, it is 99.98%, or two orders to correct out of 10,000.
• On-time shipping: the share of orders that left within the promised window. At Kolineo, 99.87% of orders ship on time.
• Inventory accuracy: how closely physical stock matches the system, verified by cycle counts.
• Dock-to-stock time: the time between an inbound arrival and its availability for sale.
• Order cycle time: the time between an order’s receipt and its handoff to the carrier.
• Cost per order: the total logistics invoice divided by the number of orders, tracked month over month.

Our service commitments (same-day shipping, accurate and timely receiving, accurate real-time inventory and error-free orders) are presented on our service guarantees page.

A high-performing 3PL is not enough on its own: the quality of the relationship also depends on you. Brands that get the most out of their partner share a few habits:

• They announce inbound shipments with an advance shipping notice, labeled pallets and barcodes on every box.
• They share forecasts: promotions, launches, seasonal peaks, new retail accounts.
• They keep product data up to date: new SKUs, dimensions, packing rules.
• They review performance regularly: a periodic look at KPIs, costs and possible improvements.
• They flag problems quickly, with specific examples, so they get fixed at the source.

Is your platform compatible? Kolineo connects to Shopify, WooCommerce, Amazon, BigCommerce, Magento, eBay, Squarespace and ShipStation; every connection is listed on our integrations page.