In third-party logistics (3PL) "public warehousing" and "contract warehousing" are common terms. Do you know the difference between them?

To begin with the most basic point: Private Warehousing is an endeavor undertaken by a company, often a manufacturer, to store their own product. The company chooses to absorb all the costs associated and may keep the product on or off-site. Henry Ford is a great example of an innovator who preferred private warehousing. When he expanded the Ford company to begin sourcing his own steel, he had to simultaneously find a place to store it. Ford chose to keep it all under a single company name and expanded Ford Motor Company to handle his warehousing.

On the contrary, 3PL Warehousing is any storage of products by an outside third party. The 3PL does not own the product but takes on the responsibility of handling the product, keeping track of inventory, investing capital in the equipment, and staffing the operation. Everything that a warehousing company does falls under this banner. When they meet with clients, however, public warehousing takes on a new meaning.

Public Warehousing

Public warehouse space is floor or rack space available for anyone to store anything. Historically, this is usually a pallet-in/pallet-out setup with a monthly square footage rate. Public warehousing in the 3PL world is like an apartment rented on a month-to-month basis. It works well for short-term overflow projects or clients with seasonal swings in supply and demand.

There is typically not a lot of rework or value-added services provided at this level, although that can be set up. The fee schedule is also straightforward, with the main charges being for receiving and shipping and the square footage the product is in.

It is also noteworthy that public warehousing is on a first-come, first-served basis. If the warehouse is full, then you will need to find another place to store your product. The flip side of that is increased flexibility. If you are using 10,000 sq ft. this month but plan to have all but 2,000 sq ft.

shipped out by April; then you are paying for 10,000 sq ft. this month and only 2,000 sq ft next month.

Contract Warehousing

Contract warehousing takes away the flexibility of public warehousing, but you gain a guarantee. Whether the space is full or empty, the square footage you contracted is yours. The warehouse provider will not fill that space with anyone else's product while waiting to receive your goods.

Contract warehousing is also commonly used to fulfill more intricate customer needs. If there is a need for pallet reworking, a pick-and-pack order fulfillment setup, quality checks, and a large space footprint, a contract warehousing agreement is the way to go. The scope of work needed can be determined and set up within the contract, serving to ensure both client and 3PL’s requirements are met.

Spartan operates industrial real estate as a third-party logistics company combined with asset-based freight services.

Most contract warehousing setups are long-term, 3-5 years. This ensures the provider’s ability to invest in the client's needs whether it be special equipment, trained personnel, or technology solutions, and results in a win-win situation for both parties.

As noted in the Venn diagram, the invoices are usually very consistent. With contract warehousing, everything is spelled out in the agreement so the monthly or weekly invoices should be fairly similar one to another, leaving no surprises.

Spartan Logistics strives to keep surprises at a minimum. We want to help you grow and meet your goals. Whether you need extra floor space to bring in new materials or you are looking to expand your inventory but have run out of room, we can help. Spartan operates industrial real estate as a third-party logistics company combined with asset-based freight services. Spartan serves over 100 supply chain customers at 20 warehouse locations across seven states. For more information, visit us at spartanlogistics.com