4PL and 5PL logistics service providers are on the rise. How do these firms differ from the supply chain and transportation industry’s more common 3PLs, the third-party logistics providers? The differences between these types of logistics firms are confusing and often debated even amongst industry experts, but here are the basics to get you started.
What is a 3PL?
A 3PL, third party logistics company, is an enterprise that works with shipping companies to manage logistics and distribution services on behalf of another organization. 3PL companies manage outsourced logistics and distribution activities while acting as the liaison between the shippers and the company they are hired to represent. There are thousands of 3PLs worldwide with various business models to differentiate logistics services. Some are generalists, while other 3PLs specialize in a specific product such as bulk liquid transportation.
Common Functions offered by 3PL (third-party logistics) providers:
- Integrated operations
- Transportation services
- Inventory management
- Freight forwarding
Note: These may vary based on the business model of the company.
What is a 4PL?
4PLs, or a fourth party logistics providers, are still a relatively new model by industry standards. 4PLs, provide many of the same services as 3PLs thus determining the exact distinction between 3PLs and 4PLs is difficult. The figure below provides a simplified explanation.
Let’s start by considering what we mean by “1PL” and “2PL”. The 1PL, or 1st party, is the manufacturer who must ship the freight. The 2PL is the asset-based carrier responsible for the transport and storage of the freight. Numerous 2PLs may handle the freight between the point of origin at the manufacturing facility and the point of final sale for consumption. 3PLs are companies who provide outsourced logistics services to manage transactions with 2PLs on behalf of the first party. 4PL represents the manager of a network of 3PLs.
A fourth-party logistics provider is an independent, non-asset based integrator who acts as the main point of contact for the customer in determining and assembling resources and technology from both its own organization as well as other 3PLs to comprehensively run the client’s supply chain. Often, over time larger 3PLs evolve into a 4PL provider.
Difference Between 3PLs and 4PLS
The main difference between 3PL and 4PL is the control and accountability that the PL provider has over the customer’s supply chain. 4PLs provide the customer with a higher level of consulting services regarding their supply chain processes. These include:
- A neutral management,
- Impartial feedback,
- Efficiency, and
- Cost strategies.
Therefore, transparency, communication and trust are key for 4PL providers in order to provide the optimal transportation solution to meet the customer’s specific objectives. More than just an outsourced vendor, the 4PL acts in lieu of the customer and must remain objective in their decision-making to serving the customer’s best interests. Organizations who use more than one 3PL without outsourcing to a 4PL are themselves responsible for finding, planning, and coordinating the relationships and logistics between all of their 3PL providers.
What is a 5PL?
5PL providers construct, organize, and implement logistics solutions and technologies on behalf of multiple clients. The difference between 4PLs and 5PLs is that fifth party logistics providers have an extensive focus on e-business solutions. 5PLs are committed to collaboration to achieve the minimum cost. Therefore, they will aggregate 3PLs demands into bulk volumes for more favorable rates.
How to Find the Right Logistics Strategy for Your Business?
Determining the right logistics provider(s) depends on your business structure and strategy. At Matlack Leasing, we specialise in leasing tank trailers and tank chassis so that 2PL, 3PL, and 4PL providers have the right equipment when and where they need it for bulk liquid transport. If you have a need to transport or store bulk liquids, contact us today!