Third-party logistics · Logistics and supply chain
Contract logistics with a profit and loss for every client contract
A third-party logistics firm wins a contract on a rate card and runs it on shared sites, shared vehicles and shared people. We build a profit and loss for every contract, check that every billable activity is billed, and track start-up cost against the term. Renewals are then priced on what each contract actually earned.
In one paragraph
Integrated contract logistics firms provide transport, warehousing and value-added services such as kitting, labelling and returns handling. Their clients are manufacturers, retailers and e-commerce sellers on multi-year contracts. Each contract bundles several services with its own rate card, minimum volumes and pass-through terms. For owners and finance heads, margin is decided contract by contract rather than at company level.
Managing director or chief financial officer, often with the head of operations
The economics
How the money moves in this trade
A contract is priced on a rate card: per pallet stored, per order picked, per kilometre or per trip moved, per unit labelled. It carries minimum volume commitments and pass-through charges for freight, packaging or consumables. The firm often invests upfront in racking, equipment, systems integration and recruitment to start a contract. It recovers that investment through rates over the contract term.
Cost is mostly people, space and vehicles, frequently shared across clients at a multi-client site or a common transport network. Manpower comes through contractors, with the attendant wage and social security obligations, and transport is a mix of owned and hired vehicles. Without cost allocated to contracts on a stated basis and volumes reconciled to billing, the company knows its total margin but not which contracts produce it.
The problem
Where the numbers usually break down
No profit and loss by contract
Shared site rent, supervisors, equipment and vehicles are not allocated, so each contract shows revenue but no cost, and renewals are priced on overall company margin.
Billable activity goes unbilled
Value-added work, detention, special handling and urgent deliveries are performed on request and never reach the invoice, because the warehouse system and billing do not talk to each other.
Minimum-volume shortfalls are not invoiced
Contracts provide for a charge when volumes fall below the commitment, but the shortfall is calculated late or waived to keep the relationship.
Pass-through costs are recovered late or below cost
Freight, packaging and consumables are paid by the firm and recharged at old rates or months later, so the firm finances its client's costs.
Start-up cost is not tracked against the term
Racking, integration and recruitment cost to start a contract is expensed or capitalised without reference to the contract, and early termination leaves it unrecovered.
What we do
The work, and the result each part produces
Contract profit and loss
Revenue and direct cost by contract, with shared site, vehicle and supervision cost allocated on a stated basis, reported monthly.
Every contract shows its own margin.
Activity-to-invoice reconciliation
Volumes from warehouse and transport systems matched to each rate-card line on the invoice.
Every billable activity reaches the invoice.
Minimum commitment tracking
Volumes against contractual minimums computed each billing period, with shortfall charges raised or waivers recorded and approved.
Shortfall revenue is billed or consciously given up.
Pass-through recovery control
Recoverable costs tagged at payment and recharged in the next billing cycle at current cost.
The firm stops funding its clients' freight and packaging.
Start-up cost recovery schedule
Upfront investment per contract tracked against the amount recovered through rates and the remaining term.
Exposure on early termination is known for every contract.
Manpower cost and compliance by contract
Contract labour cost, attendance and statutory dues reconciled by site and contract.
People cost is accurate and compliant contract by contract.
Where we start
The first steps of an engagement
Contracts, rate cards and volumes
We ask for each client contract and rate card, a year of invoices, activity extracts from the warehouse and transport systems, site cost ledgers and the contract labour bills.
Activity-to-invoice match
Volumes from the operating systems are matched to each rate-card line on the invoices. Minimum-volume shortfalls and pass-through recharges are checked for each billing period.
Allocation basis for shared cost
A written basis for allocating shared rent, supervision, equipment and vehicles to contracts is agreed with you and applied in the monthly close.
Contract profit and loss
The first report shows margin by client contract, unbilled activity and shortfall charges found, pass-through cost against recoveries, and unrecovered start-up cost by contract.
How it is measured
The reports the work is judged on
Each is recorded as a baseline before the work starts, so later reports have an honest comparison.
- Margin by client contract
- Activity volume against volume billed
- Minimum-volume shortfall billed or waived
- Pass-through cost against recoveries
- Unrecovered start-up cost by contract
- Manpower cost per unit handled, by site
Who it suits
Written for, and not the right fit for
- Your business is mainly storage in warehouses you operate; our warehousing operators page goes deeper on that.
- You need a statutory audit or tax-audit report on its own; that is signed by an independently engaged CA.
- Contract logistics firms providing bundled transport, warehousing and value-added services under client contracts.
- Firms running multi-client sites where cost is shared and margin by client is unclear.
- 3PL firms preparing for a large tender, a contract renewal cycle or an investor review.
Services
Services this work draws on
Costing and profitability
What each product, line and customer really contributes.
Explore service ↗MIS and financial planning
Reporting built around the questions you actually need answered.
Explore service ↗Finance technology and automation
Systems configured around your process, not the other way round.
Explore service ↗Payroll and labour compliance
Every payroll cycle reconciled, with the statutory workflow attached.
Explore service ↗Outsourced accounting
Your books kept current and reconciled, closed to a published calendar.
Explore service ↗Every other service, also available in this trade
Common questions
Questions owners in this trade ask
How do you allocate cost at a site shared by several clients?
By the driver that best reflects use — floor space or pallet positions for rent, labour hours or units handled for manpower, trips for transport. The basis is agreed with you, written down and applied every month so contracts are comparable.
Our warehouse system and billing are separate. Do we need to replace one?
Usually not. A regular extract from the warehouse system matched to the invoice lines is often enough to stop leakage. Automation can follow once the matching rules are settled.
How should a new 3PL contract be priced?
From cost per activity in the contracts you already run, not from a competitor's rates. Once contract-level costs exist, we build the new rate card line by line from them.
Explore further