What Is Logistics?
Logistics is the process of getting or making goods and distributing them to customers. Logistics can also refer to the details around managing this process. The different layers of logistics vary depending on how goods are moved from a factory to a warehouse to a client.
If you’re confused about the differences between third-party logistics (3PL) vs fourth-party logistics (4PL), you aren’t alone. These days, the two terms seem to be used interchangeably. However, the benefits and tradeoffs between the two are actually quite different.
With help from this Expak Logistics 3PL Guide, we’ll discuss the differences between 3PL vs 4PL. The differences between the two could impact your company more than you might expect. That’s why it’s crucial to really understand 3PL and 4PL before signing a contract.
The 5 Layers of Logistics
While we’re only discussing 3PL and 4PL here, it’s important for you to understand the various layers of logistics.
- First-party logistics (1PL) refers to a company that handles every aspect of transport and logistics.
- Second-party logistics (2PL) refers to subcontracting a specific short-term transport or logistics task.
- Third-party logistics (3PL) refers to using another company to handle some logistics and transportation.
- Fourth-party logistics (4PL) refers to outsourcing the management of all your logistics and transport needs.
- Fifth-party logistics (5PL) involves switching from a supply chain to a supply network and is common with e-commerce.
3PL and 4PL are the most commonly used types of logistics.
What Is 3PL?
The legal definition of third party logistics (3PL) is: “A person who solely receives, holds, or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.”
In short, 3PL is only responsible for warehousing and shipping products. That’s only one small piece of a company’s overall logistics needs.
What Are the Benefits of 3PL?
3PL has many benefits, including:
- You maintain control of your supply chain
- You get to use the 3PL company’s existing relationships and infrastructure
- It’s good for cost control compared to handling warehousing and shipping yourself
- They have experience with optimizing routes
What Are the Downsides of 3PL?
Since 3PL is only one small part of logistics, there are some downsides, including:
- You still need to hire staff to manage the rest of your logistics
- Other aspects of logistics are left up to you
- You may be stuck with one company for all your warehousing and shipping
What Is 4PL?
While 3PL only handles one part of your supply chain, a 4PL company handles the entire process. This includes things like managerial decisions and legal paperwork.
4PL companies usually have contracts with many partners. This helps them customize the best supply chain system for your company.
What Are the Benefits of 4PL?
4PL has many benefits compared to 3PL, including:
- You don’t need to employ people just to deal with logistics
- 4PL handles all aspects of your supply chain
- They can work with multiple service partners for the best solutions and prices
- They have the best technology to optimize the entire logistics process
What Are the Downsides of 4PL?
4PL may not be the best solution for your business. Some downsides of 4PL include:
- You give up all control of your supply chain
- You must have full trust in your 4PL company
Which Is Better: 3PL vs 4PL
Neither logistics option is inherently better or worse than the other. 3PL is better for some businesses, while 4PL is better for others.
3PL might be a better option for you if you want to retain control of your supply chain. 3PL only handles one aspect of logistics (warehousing and shipping) and leaves the rest to you.
4PL companies take control of your entire supply chain. This reduces your need to manage logistics at all. They are experts at managing a supply chain, but you must give up all control.
In any case, you should talk to potential 3PL or 4PL partners about what exactly they do and don’t offer.
