PL (Party Logistics) refers to logistic service providers and their outsourcing. Companies often entrust their logistics service to external providers, which, depending on the type (1PL-2PL-3PL-4PL-5PL & more) have different characteristics.
In this article curated by Savino Del Bene, we will focus particularly on 4PL. After providing a detailed definition, we will understand how it works and what advantages it offers. We will also give a comprehensive overview of all the outsourcing levels, in order to grasp the differences (especially between 4PL and 3PL).
What is 4PL: meaning and definition
4PL (also known as fourth-party logistics) is a logistics management model where an intermediary is present between the producer company, buyer company and the shipping service provider. This service involves providing logistics consulting services and also includes the practical execution of the work, which is carried out by other providers (3PL).
The 4PL logistics consulting activities (otherwise known as Logistic Service Provider or Lead Logistics Provider) also indirectly include warehousing procedures (which are the responsibility of the selected 3PL). It also involves procurement of good 3PL providers, who handle shipments. Acting as an intermediary between the producer company, the buyer company and various logistics providers, the 4PL provider is able to oversee the entire supply chain, from production to final delivery. This is made possible thanks to the 4PL’s ability to ensure centralized visibility over all processes, through advanced solutions such as Tracking & Tracing (T&T).
The global 4PL services market is growing. According to a Grand View Research report, it is expected to grow at a CAGR of 10.2% from 2022 to 2028, reaching $182.5 billion by 2028. Why these numbers? Let’s try to understand by analyzing the different levels of logistics outsourcing services.
1PL 2PL 3PL 4PL 5PL: the levels of logistics outsourcing services
To better understand the differences between the various levels of Party Logistics, it is necessary to delve into the nature of the relationships between all the companies involved. In particular, between the producer company and the logistics service provider, i.e., the contracting company that undertakes to carry out the requested service. A lot depends on the level of collaboration between these two companies: the more comprehensive the service offered by the provider to the producer company, the higher the level of collaboration (and with it, the number indicating the degree of service provision).
1PL (First Party Logistics)
The producer company independently manages the entire logistic process (with some exceptions depending on Incoterm), without outsourcing the service. The company, therefore, takes care of both production and distribution. This solution is very advantageous economically but is only applicable to small businesses.
2PL (Second Party Logistics)
The producer company relies on an initial outsourcing of the service, which consists of the transportation and storage of the goods, but continues to directly manage all operations related to order preparation, warehouse management, and shipments. This solution allows the company to save on transportation costs while focusing simultaneously on growing its own business.
3PL (Third Party Logistics)
The service provider becomes the intermediary between the producer company and customers, managing the entire logistics process: from orders to storage, from returns to inventory updates. This solution allows the producer company to focus exclusively on production and marketing.
4PL (Fourth Party Logistics)
The 4PL represents a subsequent and even more complete step compared to the 3PL. In this model, the provider does not deal with storage or transportation but with coordination and strategy. Specifically, it manages work cycles, integrates new technologies, coordinates 3PLs for the operational part, identifies sector risks, and more. The task of the 4PL, in short, is to provide consultancy to the producer company to reduce costs and optimize the supply chain.
5PL (Fifth Party Logistics)
The 5PL, or fifth-party logistics, is a further evolution of the service. This involves carrying out the 3PL provider’s transport and logistics services while optimizing the 4PL provider’s supply chain. In a sense, the 5PL can be seen as the global management of supply chain networks.
The differences between 3PL and 4PL
To deeply understand the differences between 3PL and 4PL, it is necessary to understand the logistics services they offer and the type of relationship between the company and the provider. Let’s look at them in more detail.
Characteristics of 3PL
Firstly, the 3PL has its own logistics resources (from transportation to warehouses) and primarily carries out operational activities. It takes care of preparing orders, distributing goods, managing stocks, and returns. The relationship between the company and the provider is very flexible and generally short to medium-term, so much so that it is based on “pay-per-use” contracts, which can end with the execution of a single service. Finally, the provider is not involved in work planning at a strategic level.
Characteristics of 4PL
Unlike the 3PL, the 4PL does not have physical resources since it does not have its own structures or a fleet of vehicles for managing and transporting goods. Its activity is mainly strategic. In fact, it manages the supply chain and coordinates the 3PL provider network. The relationship between the company and the provider is generally long-term: the latter does not just provide services but becomes a true strategic partner. The goal of the 4PL is to contribute to the growth of the producer company, aiming to achieve maximum efficiency in supply chain management.
The advantages of 4PL
Opting for the 4PL is therefore advantageous for various reasons. If you manage a company, here’s why you should consider outsourcing logistics services:
- Reduced costs: entrusting these services to third and fourth parties allows significant savings from the point of view of supplies and infrastructure, allowing the company not to have to rely on its own vehicles or warehouses;
- More efficiency: the 4PL’s objective is also to make the various phases of the logistic process more efficient. While the producer company can dedicate itself to production, the provider manages and improves the distribution chain;
- Customized solutions: the 4PL offers personalized and tailor-made services for every single business;
- More coordination: complete management by the 4PL, which among other things monitors the work of the various 3PLs, ensures better coordination of activities.
The 4PL is a fundamental innovation in the world of logistics: from the perspective of international shipping services, it could be a crucial step for all those companies interested in expanding and keeping up with the technologies and strategies of the sector.
Are you thinking of relying on fourth-party logistics services for your business? Discover the 4PL proposal from Savino Del Bene. Contact our experts immediately for consultation: we will study a tailor-made solution for your activity together.