Third-party logistics companies (3PL) are often discussed as all doing the same service using similar methods. Many think that when there are changes in the real estate market, labor costs, or equipment pricing, it has the same effect on the entire industry. However, two different 3PLs can often perform the same service, but be structured very differently and have contrasting strengths and weaknesses.
The key distinction of being an asset-based 3PL is owning the majority of the warehouse space, forklifts, trailers, and other key equipment that goes into an operation.
When a potential client calls about the need for warehouse services, they have a guarantee that the asset-based 3PL will be there for the long term because they have an investment in the market. It also allows for more effective cost control throughout an operation. Because the equipment is often 100% paid, the space is secured, and the 3PL is not dealing with an outside landlord, there are fewer outside variables that could cause price increases.
The biggest drawback of being asset-based is that a company leaves itself open to significant long-term losses. When a 3PL has an owned building with large amounts of vacancy, it is more difficult to get out of because there is a long-term investment. It puts a larger emphasis on keeping vacancies as low as possible and building key customer relationships to have long-term deals in place.
On the contrary, an asset-lite 3PL leases or rents the majority of its warehouse space, forklifts, trailers, and other key equipment.
When these 3PLs open a new warehouse location, they typically find a warehouse to lease, operate the warehouse for the length of the term, and exit once the contract ends. This is the primary advantage of being asset-lite: flexibility. Since they do not own most of their facilities, they are not tied to long-term contracts on space and equipment and are not as concerned with barriers to enter a market.
A major drawback is that asset-lite 3PLs are left more vulnerable to market fluctuations. When the availability of warehouse space shrinks, it makes it difficult to go and find a warehouse to lease for a new customer. Additionally, when inflation rises and causes increases in labor and equipment costs, those costs are more likely to increase and fall on the end customer.
At Spartan Logistics, our founders made the early decision to own the buildings we operated in and the equipment we operated with. As an asset-based 3PL, we offer the certainty that we are going to remain in and continue to invest in the markets where we operate. For more information, contact us today.