3PL vs 4PL: How to choose the right logistic provider?
At a certain stage of eCommerce development, the search for a logistics operator becomes a matter of course. What are the differences between the various providers? And how to choose the right one? Read our article, in which you will find out.
Types of logistics providers (from 1PL to 5PL)
To begin with, it is worth explaining what the acronym PL is. PL stands for ‘Party Logistics Provider’, preceded by a number, e.g. 1PL, indicating which type of logistics provider is being described. Firstly, the count implied the number of parties involved in the logistic process. However, with time, it is more describing the number of processes that have been outsourced. Now the range is between 1PL and 10PL.
Because the needs and levels of eCommerce businesses are different, there are five most common types of logistics service providers. They have been selected to respond as effectively as possible to market diversity.
- First-Party Logistics (1PL) – in this case, we are talking about in-house logistics or self-logistics. This applies to companies that can handle the transport themselves, have the necessary resources, and know-how to manage them.
- Second-Party Logistics (2PL) – refers to logistics operators who own or lease transport equipment such as ships, aircraft, or lorries and provide only transport or delivery services.
- Third-Party Logistics (3PL) – is the most popular logistics service model available on the market. As in the case of 2PL, the operator owns the transport equipment, provides shipping and delivery services, and at the same time can offer additional solutions such as warehouse operations, inventory management, or tailored packaging.
- Fourth-Party Logistics (4 PL) – is the type of operator who is a manager and a single point of contact in the whole logistics process. It can offer the same services as a 3PL, but it does not always own them.
- Fifth-Party Logistics (5PL) – is referred to by the term logistics aggregator. This operator can offer not only 3PL and 4PL services, but also develop an operation and deployment strategy for each part of the supply chain. Often deals with the logistical needs of multiple 3PLs and multiple supply chains, negotiating better rates.
We mentioned earlier that the range of logistics provider types ends at 10PL. So, what about models from 6PL to 10PL? They are relatively new in logistics, implementing the use of artificial intelligence in supply chain management. As AI is not standardized yet, the framework for these operators is also difficult to define. Therefore, we have focused on the most popular logistics models.
Third-Party Logistics (3PL) – a closer look
From an eCommerce perspective, working with a third-party logistics provider is about outsourcing order fulfillment.
You can find detailed information on how this process looks like in the article: Grow your business with eCommerce fulfillment
Working with such a provider not only makes it possible to carry out logistics activities but also to take up solutions for inventory management, warehousing, packaging, or returns handling. It ensures that provided services are more adapted to the requirements of the business and the expectations of customers. By outsourcing them, eCommerce frees up its resources and can better realize market expansion.
Cooperation with a 3PL company is very much about the experience and support it can offer, both in the area of logistics services and in the other stages of order processing. It is difficult to imagine that anyone would know this business better than the experts. Knowledge in the area of risk management or cost optimization of the actions taken will help to avoid many mistakes or significantly reduce them, especially if you are just starting to develop eCommerce.
Pros and cons of using a 3PL provider
The benefits of this partnership are considerable:
Firstly, they are due to the better rates that are offered to logistics operators, who often negotiate prices based on the frequency and volume of orders. Secondly, by outsourcing in-house activities, the company recovers resources in such forms as staff, time, or space, which is a good measure of savings.
Higher customer experience
The better the entire order fulfillment process is handled, the more satisfied the customer is. The ability to personalize shipments, ensure short delivery times and tracking of orders make the customer experience with the brand far better.
It is the ability to scale up or down quickly in response to market demand during the peak season and troughs. This increases the efficiency of the process and often avoids additional costs.
However, like any solution, it has its flaws:
Situations vary, and if something untoward happens at the order processing stage (e.g. delayed delivery), you will probably hear about it from your customers. You remain their main contact, not the logistics partner.
We have already mentioned that working with a 3PL can help reduce costs in the long term, although the initial investment is often high. For small eCommerce businesses can be almost unattainable.
The barrier between you and the product
It does not always have to be this way, but there are times when you will have less insight into your product. Your response time to customer feedback may be longer.
What is Fourth-Party Logistics (4PL)?
The 4PL is said to be the logistics provider that steps in where the 3PL loses its elasticity. In addition to the activities that third-party logistics companies can provide for eCommerce, fourth-party logistics offers greater support at the management level. Is also known as a Lead Logistics Partner or Lead Logistics Provider.
Due to its cooperation with a multitude of 3PLs, this operator can assist its customer in planning and managing the entire supply chain. The partnership between 4PL and the customer is governed by a single contract and the operator is the only contact point for all entities in the chain. It happens that 4PL operates on a long-term contract to manage logistics in a specific country or a dedicated business line.
Usually, the 4PL does not have its own warehouses or transportation assets, however, it may manage and coordinate them through a 3PL. Focuses on process optimization, not necessarily on day-to-day operations.
Fourth-party logistics provider services can also be described as a type of business process outsourcing, which operates similarly to financial outsourcing for example.
4PL – is it worth it?
The advantages and disadvantages of this solution are partly covered by those outlined in the description of the 3PL. Why? Because the 4PL extends and complements the activities offered by the 3PL.
The strengths in applying this solution include strategic advice, not just support at the operational level. The plus point, from an eCommerce point of view, is that the management of the entire logistics operations is transferred to a 4PL company, which will generate significant savings at a higher level of development.
The weakness of this option may be the limited influence on the order fulfillment process and logistics as a whole. Still, it is important to remember that operators such as 4PLs want to provide the best solution for the business at hand, where the satisfaction of their customer, as well as the consumer at the end of the delivery chain, matters. Services offered at this level are often expensive and difficult to access for small and medium-sized companies.
Which solution is right for your eCommerce?
What if we tell you that there is a company that can offer a mix of services from the level of 3PL, 4PL, and 5PL operators, whose entry threshold for using its services is much lower than that of logistics companies? Surprised?
Linker’s approach to e-commerce fulfillment is exceptional. We work with 50+ logistics companies throughout Europe and offer the services of a higher level of logistics providers. We support eCommerce in building up logistics strategies in selected locations, enabling foreign expansion. We manage and coordinate entire supply chains so that our customers can develop their business in other areas.
Our offer is dedicated to eCommerce of all sizes.
What can you gain?
- savings in the long term
- the support at every level of the logistics development process
- order fulfillment which satisfies challenging customers
And all this with one contract.