What is the difference between 3PL and 4PL and other logistics providers?
The existence of 3PL (third-party logistics) is nothing new, but where does 4PL (fourth-party logistics) come into the picture, and are there any other ‘PL’s you should know about?.
Here’s a rundown of each type of logistic provider and where each falls into the spectrum of supply chain management, distribution, warehousing, transportation, and more.
What is a 1PL?
A first-party logistic provider is any company that transports cargo, freight, goods or merchandise, and can refer to both the cargo sender (like a manufacturer delivering to customers) or the cargo receiver (like the retailer picking up cargo from a supplier).
Simply put, the entire logistics and distribution process is managed internally by the business. This method of logistics is relatively uncommon, as most businesses today outsource their logistics operations to external providers.
Australian red meat supplier Samex is a 1PL as it exports goods to wholesalers, distributors and supermarket chains worldwide using its own logistics operations.
Pros of 1PL
- Complete control of the logistics and fulfillment process
- Control of quality processes
- Control over packaging and transportation
Cons of 1PL
- The business must own and be responsible for every facet of the logistics process
- High-quality fulfillment is expensive and requires additional infrastructure, staff, equipment, etc.
The 1PL approach is typically used by large companies that have the volume and infrastructure to manage their entire supply chain internally.
What is a 2PL?
A second-party logistics provider handles the transportation component of the supply chain and is responsible for getting a company’s goods from A to B. 2PLs lease or charter their own transportation – such as ships, trucks, or planes – to companies, and they can also be contracted to transport freight. A logistics provider that only transports goods over a certain part of the supply chain could also be classified as a 2PL.
Any freight forwarding company such as World Cargo Transport Inc. headquartered in Woodbridge, New Jersey, is a provider of logistics services to and from almost anywhere in the world.
Pros of 2PL
- Flexibility in terms of what components of the supply chain are outsourced
- Different modes of transportation available
Cons of 2PL
- Typically not a full-service logistics solution
2PLs are suited to companies that want a segment of their supply chain managed externally (such as transportation from a warehouse to a dock) but would prefer to manage other parts of the supply chain internally.
What is a 3PL?
A third-party logistics provider provides outsourced logistics services to companies. These services can make up part or sometimes all of their supply chain management functions, including:
- Inventory storage and management
- Picking and packing
- Freight forwarding
- Customs brokerage
- Contract management
- IT solutions
UPS are a well-known example of a third-party logistics provider. They offer all the services listed above and more, and operate on a global scale.
Fulfillment by Amazon is also a type of third-party logistics provider. However, it comes with restrictions in terms of allowable products and packaging requirements, and services are more limited than some other 3PLs.
Pros of 3PL
- Finding the right 3PL can save you time and money, through economies of scale (eg. Shipping Rates)
- It works well with both local and international distribution, and you can get speedier delivery by benefiting from their multiple storage locations
- It works well for a fast growing business with large order volumes
- You can still opt to control customer service and returns
Cons of 3PL
- You have less control over your inventory and the customer experience
- Finding the right provider who you can trust and rely on can be time consuming
- 3PL can be an expensive cost, especially when you only have small quantities of orders
- Generally, 3PL providers won’t handle perishable, hazardous, or flammable goods
3PLs are suited to small-to-medium-sized businesses that want to take advantage of the operational power of an external logistics company but still want some control over their supply chain.
What is a 4PL?
A fourth-party logistics provider essentially takes third-party logistics a step further by managing resources, technology, infrastructure, and even manage external 3PLs to design, build and provide supply chain solutions for businesses.
4PL services typically encompass 3PL services as well as:
- Logistics strategy
- Analytics including transportation spend, analysis, capacity utilization, and carrier performance
- Freight sourcing strategies
- Network analysis and design
- Business planning
- Change management
- Project management
- Control tower and network management services, coordinating a wide supplier base across many modes and geographies
- Inventory planning and management
- Inbound, outbound and reverse logistics management
Deloitte provides 4PL services that go above and beyond traditional 3PL by offering strategic business insights and consultative services in addition to logistics execution.
Pros of 4PL
- Outsource the entire logistics segment of a business
- Take advantage of strategic advice in addition to operational support
Cons of 4PL
- Little control over logistics and fulfillment processes
- Likely to be expensive
4PLs are a relatively new concept, but typically they’re sought out by medium to large sized businesses that are seeking a complete logistics solution from both an operational and a strategic perspective.
The difference between 3PLs and 4PLs and other logistics providers: a hot debate
The difference between 3PLs, 4PLs and other ‘PL’s is highly debated, even among experts in the supply chain industry. The simplest way to think about it is that each successive type of logistics provider offers greater involvement in the supply chain than the last.
As for which one will work best for you, that depends on your business model, infrastructure, budget, and how much control you want over your supply chain.
Many eCommerce businesses choose 3PLs because they provide a good combination of support, flexibility, and cost-effectiveness. What’s more, TradeGecko integrates with 3PL providers directly (such as Amazon FBA), via our integrations with shipping apps and 3PL Central provided by Cart Rover, or through our 3PL exporter add on, which allows you to streamline your order fulfillment process across both systems.