Learning the difference between third party logistics (3PL) and fourth-party logistics (4PL), as well as 1PL and 2PL, and the rise of even fifth-party logistics (5PLs) is becoming increasingly sophisticated and valuable for driving successful supply chain operations. They all involve a degree of outsourcing transportation functions, whether that’s supply chain cybersecurity management or white glove services, and technically, all 4PLs and 5PLs exist as 3PLs too. Shippers should understand these layers of logistics and how each brings value to a logistics strategy.
The Council of Supply Chain Management Professionals (CSCMP) defines a 3PL as follows:
“A firm which provides multiple logistics services for use by customers. Preferably, these services are integrated, or "bundled" together by the provider. These firms facilitate the movement of parts and materials from suppliers to manufacturers and finished products from manufacturers to distributors and retailers. Among the services which they provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding.”
Essentially, a 3PL is a third party that fulfils requests from a shipper. It includes brokerages and freight forwarders, but there comes a point at which simply outsourcing to a single 3PL or even several 3PLs grows too complex to handle. That’s where a 4PL begins to take shape and add value.
“Differs from third-party logistics in the following ways; 1)4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners; 2)4PL organization acts as a single interface between the client and multiple logistics service providers; 3) All aspects (ideally) of the client’s supply chain are managed by the 4PL organization; and, 4) a major third-party logistics provider can form a 4PL organization within its existing structure. The term was registered by Accenture as a trademark in 1996 and defined as ‘A supply chain integrator that assembles and manages the resources, capabilities, and technology of its organization with those of complementary service providers to deliver a comprehensive supply chain solution.’ But that definition is no longer registered.”
The definition of 4PL is continuously evolving. Managing several 3PL partnerships would constitute a 4PL under that definition, but as the definition changes, it can include other service providers too.
“When 3PL providers outsource any of their own contracted services, they become a 4PL provider. In the example of a book publisher, if the fulfilment centre subcontracts out its shrink-wrapping and freight weighing to other companies, then the centre acts as a 4PL provider.”
It’s almost comparable to a 3PL within a 3PL, not so much a 3PL vs 4PL, but rather an extension of management capabilities. An inside voice at GlobalTranz further spoke on the value-add of a world-class 4PL recently with Food Logistics.
According to GlobalTranz Vice President of Customer Solutions David Commiskey, “3PLs act as a strategic partner for shippers as they move goods across the country, and have ‘skin in the game’ because they’re taking on pricing and risk commitments with each load. 4PLs manage a company’s entire supply chain, also taking on that consultative role while managing other logistics providers.”
Shippers that work with 4PLs like GlobalTranz can tap the resources of a 3PL while also taking advantage of managing multiple providers, such as a lead logistics provider (LLP). Depending on the needs, the 4PL can begin to offer other services that go beyond the typical definition of a 4PL, such as tracking transportation metrics and partner performance, which is where consulting starts to enter the layers of logistics when thinking about 3PL vs 4PL and beyond.
Another level of logistics providers is a 5PL. As explained by the Logistics Glossary, “A fifth party logistics service provider guarantees the management of networks of supply chains. The industrial actor hires third parties for the supply of strategic, innovative logistical solutions and concepts. A fifth party logistics service provider develops and implements, preferably in close consultation with the client, the best possible supply chains or networks. Fifth party logistics is often linked to e-business.”
Before the pandemic, the 3PL market as a whole was expected to register a CAGR of 7.1% through 2027, Says Allied Market Research, but the increased demands on e-commerce have pushed the envelope further. It would not be surprising, therefore, to see an increased demand for 4PL and 5PL-like services to help shippers of all sizes figure out what’s best, what’s necessary, how to implement it, and what’s next for their business.
