In a specialized industry about to hit €6.8 trillion by 2024, you’ll see many jargons when doing logistics work. Jargons make communication easier among industry experts, though it gets harder for people outside the space to understand.
3PL vs. 4PL vs. 5PL is currently causing a buzz among non-logistics. And if you are deep in the industry, you’ll also hear 6PL and 7PL.
Today at rouvia, let’s understand what these mean:
- What are 3PL, 4PL, and 5PL?
- What are their advantages?
- What are their disadvantages?
- And which one should you use?
The Foundations: 1PL and 2PL
1PL – First-Party Logistics
A company that transports its products by itself, using its own vehicles, is a 1PL provider.
Suppose a farmer delivers vegetables directly to retail stores by themselves or through an employee. This will be classified as a 1PL.
The company has full control over the supply chain.
2PL – Second-Party Logistics
When a company owns assets (trucks, ships, aircraft, etc.) and uses those to complete client shipments, it’s called a 2PL provider. Companies that provide warehouse or storage services also fall under this category.
In this scenario, the farmer hires a company to deliver goods for them. They do this because of a lack of resources or to focus resources on production. And they lose some freedom in the process.
3PL – Third-Party Logistics
What is 3PL?
Like with every other 3rd party service, part or the entire supply chain is outsourced to a third party. More resources are saved, but with it, you can lose flexibility. A 3PL owns all its assets. They provide services like:
- Freight forwards
- Customs procedures
- Storage management
- Road haulages
- Ocean freights
- Air services
- Export packings
- Returns management
So back to the farmer example, the 3PL might take complete control of the farmer’s deliveries and provide packaging or crating to the goods they transport.
A company might start using 3PL after an acquisition or a merger when the supply chain becomes too complicated for the new entity to manage internally – hiring a 3PL means getting a 3rd party-based logistics department for themselves.
3PL and onwards are examples of multimodal transport.
Advantages of Using a 3PL
- Significant price reductions for not managing everything in-house;
- Suitable for smaller firms that don’t have enough overhead to support the logistics of their new global supply chain;
- Since 3PLs own their transportation and services, they can give very attractive prices;
- More free time for the company to focus on production, sales, and development.
Disadvantages of Using a 3PL
- You lose quite a bit of control and oversight over the supply chain process.
Now, let’s move up to another level.
4PL – Fourth-Party Logistics
What is 4PL?
This is where we truly begin to "outsource." A 4PL takes full control of the supply chain of a company. These providers are non-asset based – they don't own any modes of transportation or storage.
The 4PL’s primary goal is to optimize supply chain processes to deliver the perfect service. They focus on strategies rather than doing the delivery work.
A 4PL coordinates the works of a single or multiple 3PLs, but a 3PL might offer 4PL solutions as well.
Advantages of Using a 4PL
- Companies with huge global supply chains can benefit from 4PLs as they can understand the bigger picture better than the company itself;
- Since 4PLs are non-asset based, they have greater flexibility. They try to be unbiased and find the best suppliers for their clients;
- Since the 4PL takes complete control over the chain, you can have peace of mind knowing you only have to track one company.
Disadvantages of Using a 4PL
- Because of outsourcing all the logistics, a company must closely monitor if the 4PL is properly meeting timelines and deadlines;
- 4PLs aren't as invested in your company's success as your logistics division;
- Companies guard their logistics data very securely from competitors. And having a 4PL (even with non-disclosure agreements) can increase the risks.
Now, let’s dive deeper into another level.
5PL – Fifth-Party Logistics
What is 5PL?
5PL is newer than the previous two. These providers look beyond the individual supply chains and focus on the whole supply chain network.
In this model, they try to maximize efficiency by creatively implementing IT solutions, such as big data, in the mix. Thanks to technology, the supplier can provide real-time tracking, end-to-end visibility, route optimization, etc., to increase efficiency.
The 5PL provider needs complete control over the entire supply chain, no matter how many providers are involved. It’s better suited for e-commerce.
Advantages of Using a 5PL
- It’s excellent for fast-growing e-commerce shops that use multiple supply chains but need efficient supply chains;
- It’s a good idea to partner with 5PLs if your company has no physical presence.
Disadvantages of Using a 4PL
- Having practically no logistics division can present some challenges for internal operations and when dealing with unpredicted challenges.
What Are 6PL and 7PLs – Sixth-Party and Seventh-Party Logistics Models
What is 6PL?
Not a lot can be added about 6PL providers because it’s still a developing concept. But roughly, it’s an AI-driven supply chain. Meaning AI aggregates and analyzes large amounts of structured and unstructured data to provide the best solutions.
What is a 7PL?
7PL is basically a 4PL provider that owns its assets as a 3PL provider does. (4PL+3PL=7PL).
So, they perform all their activities under the same ownership umbrella.
3PL vs. 4PL vs. 5PL – Which One’s the Best?
What type of provider to use depends on your business’s needs and how much you’ll invest in logistics.
At rouvia, we offer expert services for your logistic operations. We can work as your integrated logistics partner on 2PL, 3PL, 4PL or 5PL basis. Our platform can guarantee connections to forward your freight at the best rates.
Contact our experts to find ways to modify your supply chain for maximum efficiency.