What Is Contract Logistics?

Contract logistics is the outsourcing of resource management tasks to a third-party company. Contract logistics companies handle activities such as designing and planning supply chains, designing facilities, warehousing, transporting and distributing goods, processing orders and collecting payments, managing inventory and even providing certain aspects of customer service.

Understanding Contract Logistics

Logistics management is an important component of many companies' profitability and overall success. While some companies manage their logistics, others find it more efficient to hire specialized contract logistics companies to manage their logistics for them. Contract logistics companies often need to develop a deep understanding of how different industries work to best manage the logistics of a variety of companies.

For businesses operating on an international level, logistics management is an essential element of creating a sustainable competitive advantage.

It is for this reason that many contract logistic companies are started by former logistics managers, who already have a good understanding not only of the industry they work in but where they may best place their contracts.

Examples of Contract Logistics

Examples of major contracts logistics companies include United Parcel Service, Kuehne + Nagel, Exel, Genco, and DHL. These companies have been around for a long time and have made their mark in their respective industries, offering cost-effective solutions from clients and business owners. However, since the rise of start-up culture, many new services have come to market that disrupt the traditional supply chain model.

Companies like Doorman have retooled the delivery concept allowing pickups and custom delivery beyond the normal scope of delivery hours. Other companies that are more B2B focused, like ClearMetal, focus on large-scale logistical automation that tracks items like shipping containers and freight deliveries for companies using modern software learning tools, saving companies millions.

Benefits of Contract Logistics

The most obvious benefit of contract logistics is cost-savings, either in the form of equity or time, eliminating the need to construct a costly infrastructure. For example, a company that produces windows might have a large factory, and next to it an office building to accommodate staff.

That company would be much better served using a company like United Parcel Service or DHL for their shipping needs. Doing so would eliminate the need to invest in shipping trucks, airplanes, shipping facilities, packing materials, and other items that do not directly influence their product or its design.

Also, since many contract logistics companies—not just in the delivery business—are often the largest in their field, they are able to negotiate lower prices of goods that a smaller business, like the glass company, wouldn't have the leverage to do. It can thus be even cheaper to work with a contract logistics company that building the infrastructure yourself.