3PL Profitability Through Smarter Cost Savings
Welcome to The New Warehouse Podcast. In this episode, Kevin welcomes Yan Sim, founder of Operating Crew, to explore profitable fulfillment partnerships. Their conversation tackles a familiar challenge: winning business while protecting margins. Brands want savings, and 3PLs need enough profit to deliver reliable service.
Operating Crew helps brands improve their supply chains through 3PL selection, packaging, and parcel shipping. Sim explains how smarter carrier strategies, packaging changes, and proven retail capabilities can strengthen both businesses without another round of rate cuts.
To Drive 3PL Profitability, Look Behind the Price
Shipping negotiations often focus on what a 3PL adds to the bill. Sim looks further upstream: “I think part of the problem is it’s a cost structure. You’re walking into a 3PL whose cost is $9, marking up 18%, which is a fair markup. You’re pointing at the wrong thing.”
Sim estimates parcel accounts for roughly 65% to 70% of 3PL revenue. Regional and alternative carriers have changed the competitive landscape. He sees an advantage for providers that adapt: “So the ones that have really kept up and stayed on the cutting edge on that piece… give themselves the best chance of competing in a price-based game. Then they are able to make money and reinvest in their own operations to be better.”
Find Packaging Savings Before Cutting Fulfillment Rates
For a brand shipping protein powders and bars, Sim’s team started with the customer’s actual delivery. “Basically, we asked them to have the customers ship us their most common combinations of orders. SKU A and B, SKU A and A, SKU C and F, right? See how it comes in as a full order. We realized that they were shipping about sixty-eight percent air.”
The team moved 70% of orders from boxes to mailers. Sim reports $275,000 in annual packaging savings and another 80,000–90,000 in shipping savings. The 3PL maintained its rates. For providers competing in an RFP, he connects that operational work directly to the sales conversation: “And you realize that actually when you come in and be strategic about the packaging and all of that, you find fifty cents of savings per order, you don’t have to come down to eighty cents.”
Build Retail Capabilities Before Customers Outgrow You
Sim often sees retail expansion become a turning point for brands around $25 million to $30 million in revenue. The pressure reaches their fulfillment partners: “Brands tend to be quite loyal. But once you face significant issues, chargebacks with retailers, then they’re like, ‘Well, I have no choice but to go look elsewhere.’”
For 3PLs that helped those customers grow, the risk extends beyond one difficult order. “Sometimes if you only have one location, you sort of hit a ceiling.” He adds: “If you only do D2C, you hit a ceiling as well.”
Sim’s advice starts with experience: “You gotta hire people who’ve done retail.” Providers also need infrastructure and documentation to challenge chargebacks. When assessing a partner’s readiness, his warning is direct: “And I always tell brands and 3PLs, because they say that they can do it doesn’t mean they can.”
Key Takeaways on 3PL Profitability
- Address underlying shipping costs before negotiating away 3PL profitability.
- Build carrier strategies that support competitive pricing and operational reinvestment.
- Audit complete orders to uncover packaging and shipping savings together.
- Use operational improvements to strengthen proposals without cutting fulfillment rates.
- Invest in retail expertise before customer growth outpaces your capabilities.
Listen to the episode below and leave your thoughts in the comments.
Guest Information
For more information on Operating Crew, click here.
To connect with Yan Sim on LinkedIn, click here.
For more information about 3PL profitability, check out the podcasts below.
eCommerce Fulfillment Strategy: What Growing Brands Must Get Right
