The Struggle With Choosing an Asset Based vs Non Asset Based 3PL

When choosing a third-party logistics (3PL) company to work with on your supply chain needs, the first major decision is to know whether you want to work with an asset or non-asset based 3PL. These are two, very broad categories when it comes to logistics service providers. Once you have decided, you can narrow down your pool of candidates and start looking into more detailed features that will fit your company best.

In this article, we will review the differences between asset and non-asset based 3PL's and the advantages and disadvantages of each.

What is an Asset Based Third Party Logistics Provider?

An asset based 3PL owns parts or all of the assets necessary to implement and manage a customer's supply chain. These assets can be trucks, warehouses, distribution centers, and more. This can be appealing to a client that is looking for a logistics company to completely take over their supply chain.

These companies are often regarded as more stable because they have made major investments in the future and long-term operation of their company.

What is a Non-Asset Based Logistics Service Provider?

A non-asset based 3PL, on the other hand, does not own the assets needed to run a supply chain. Rather, a non-asset based company focuses heavily on expertise and experience, not hardware. Since they do not have major assets to manage, they can focus their energy on innovative and personalized supply chain solutions.

In the past, non-asset based companies were often viewed as risky due to their ability to easily cease operations, leaving the customer without support since they had no solid investment made. This was rectified when Map-21 passed, requiring a $75,000 freight broker surety bond.

Flexibility and Personalization

When a company owns assets such as warehouses or trucks, they are limited to their own solutions and often times can't customize them to fit your needs. A non-asset based 3PL can identify the areas of your supply chain that need some work, and then design solutions around those needs on a case-by-case basis.

In addition, non-asset based 3PL's are often at the forefront of technology, coming up with automated solutions to increase the efficiency of your supply chain while simultaneously reducing overhead. You can see real-world examples of these benefits in our case studies.

Conflicts of Interest

When working with an asset based logistics provider, there are a few areas where there can be major conflicts of interest:

Transportation Rates: When the 3PL owns their own trucks, you are using their transportation rates solely rather than bidding out freight to identify the best carrier with the best rate.
Freight Auditing: The reason that freight auditing is so important is because more times than not, there is an error on your invoice that costs you money. If the person auditing your invoices is also the person benefiting from these overcharges, conflicts of interest can arise.
Freight Claims Management: We all know that LTL shipments are at a higher risk for damage due to a number of times the product is handled, so you want to make sure whoever is handling your freight claims has your best interests at heart. When the damages are incurred by an asset-based 3PL's own carriers, this means they take a hit, again making trust a huge factor.
Non-Asset Based Disadvantage: If you do not own assets, and your 3PL doesn't own assets, the 3PL will then outsource these responsibilities to another company. This means more parties involved in managing your supply chain, which can get tricky to keep up with.

Final Thoughts

Overall, there are advantages and disadvantages to both types of third-party logistics companies. At the end of the day, you have to decide what is the best fit for your company and its needs.

Once you've decided which way to go, check out our guide on choosing a third party logistics company that's right for you. If you are interested in learning more about how Redwood's Modern 4PL approach can help increase your bottom line and decrease your overhead, click on the contact us button below and we'll be in touch!

FAQs

What is the difference between an asset based and non asset based 3PL?

An asset based 3PL owns some or all of the equipment and facilities used to manage freight, such as trucks, warehouses, or distribution centers. A non asset based 3PL does not own those physical assets and instead relies on logistics expertise, carrier relationships, and technology to design supply chain solutions. The main tradeoff is control and stability versus flexibility and customization.

When should a company choose an asset based 3PL?

A company may choose an asset based 3PL when it wants a provider that can take over more of the supply chain with owned trucks, warehouses, and distribution capacity. This model can appeal to shippers looking for a more fully integrated operation and a provider that appears stable because of long-term asset investment. It is often a fit when standardized infrastructure matters more than custom design.

Why would a non asset based 3PL be more flexible?

A non asset based 3PL is often more flexible because it is not limited by the equipment or facilities it owns. Instead of forcing a shipper into a fixed network, it can build solutions around specific supply chain needs on a case-by-case basis. These providers also tend to focus heavily on technology and automation, which can improve efficiency and reduce overhead.

Are non asset based 3PLs still considered risky?

Non asset based 3PLs were once viewed as riskier because they did not own hard assets, which made it easier for some to stop operating. That concern was reduced after MAP-21 required a $75,000 freight broker surety bond. Even so, shippers still need to evaluate the provider’s experience, stability, and ability to manage outsourced services well.

What conflicts of interest can happen with an asset based 3PL?

Conflicts of interest can arise when an asset based 3PL benefits from the same services it is supposed to manage objectively. For example, if it owns the trucks, it may rely on its own transportation rates instead of bidding freight for the best market price. Similar concerns can appear in freight auditing and freight claims management if the provider’s own assets are involved.

What is the downside of a non asset based 3PL?

The main downside of a non asset based 3PL is that it may need to outsource more functions, such as transportation or warehousing, to other companies. That can mean more parties are involved in managing the supply chain, which can make coordination more complex. The model offers flexibility, but it can also require tighter communication and oversight.

How should I decide which type of 3PL is best for my company?

The best choice depends on whether your priority is owning infrastructure or getting a more customized, technology-driven logistics solution. If you want a provider with trucks and facilities under its control, an asset based 3PL may fit better. If you want flexibility, personalization, and less overhead, a non asset based 3PL may be the better match.