8/18/2019 3PL vs.

3PL vs. 4PL: An In-Depth Look at the Difference Between Third Party Logistics and Fourth Party Logistics

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3PL vs. 4PL: An In-

Depth Look at the
Difference Between
Third Party Logistics
and Fourth Party
Logistics
By ShipHero December 17, 2018 No Comments

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8/18/2019 3PL vs. 4PL: An In-Depth Look at the Difference Between Third Party Logistics and Fourth Party Logistics

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The success of any business rests in the hands of the customer. If your customers
aren’t happy, they won’t purchase your products or recommend your company. This
leads to a reduction in sales which can ultimately drive your business into the ground.

There are many factors that come into play when dealing with customer satisfaction,
but one of the biggest is the order ful llment process. The speed and accuracy with
which orders are ful lled is one of the biggest determining factors in customer
satisfaction, but it is also one of the most challenging aspects of running a business. To
simplify and streamline this process for reduced costs and improved customer
satisfaction, many businesses turn to 3PL providers and 4PL providers.

In order to truly understand the difference between third- and fourth-party logistics,
you rst need to understand the basics of PL terminology. Keep reading to nd simple
de nitions of 1PL, 2Pl, 3PL, and 4PL followed by an in-depth look at the difference
between third-party and fourth-party logistics.

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A Review of “PL” 3PLs Brands Fulfillment Plans Integrations

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An online retailer has a wide variety of options when it comes to ful lling orders.
Choosing the right logistics provider is the key to optimizing your supply chain and
maximizing both pro t and customer satisfaction. If you make the wrong choice, it
could end up costing your company thousands – even millions of dollars – and it could
end up tanking your customer satisfaction rating as well.

Before getting into the speci cs of third-party versus fourth-party logistics, here’s a
quick review of “PL” terminology to put things in context:

First-Party Logistics (1PL) – A model in which the retailer sends products from one
location to another. For example, a farmer delivering eggs directly to a grocery
store for sale.
Second-Party Logistics (2PL) – A provider that owns assets to transport products
from one location to another. For example, a farmer might hire a courier (2PL) to
transport eggs from the farm to the grocery store for sale.
Third-Party Logistics (3PL) – A provider that retains oversight of the management
process but outsources transportation and logistics to an outside provider. The
company may also subcontract some or all of the execution of the supply chain
and may provide additional services such as packaging to add value. For example,
a farmer might hire a 3PL to pack the eggs in cartons and to transport them from
the farm to the grocery store for sale.
Fourth-Party Logistics (4PL) – A provider that outsources the management of
logistics activities in addition to the execution of the supply chain. These providers
usually offer greater strategic insight and management. For example, a 4PL might
manage communication with a farmer to increase egg production as the grocery
store’s inventory declines.
Fifth-Party Logistics (5PL) – A provider that develops an optimal supply chain
network with innovative and customized logistics solutions. These providers use
technology such as robotics, automation, and RFID devices to improve ef ciency
and value along the entire supply chain.
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In the above overview, the egg and farmer business is a hypothetical example that
3PLs Brands Fulfillment Plans Integrations
could be applied to any ecommerce business.
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Every business has its own unique needs for supply chain logistics. For medium- to
large-sized businesses, however, it usually comes down to choosing between third-
party and fourth-party logistics providers. Keep reading to learn the basics of both and
to receive some tips for making the best choice for your company.

Understanding the Basics of

Third-Party Logistics

Simply put, a third-party logistics provider is a model that involves three separate
parties. The rst is the business itself, the second the logistics provider, and the third is
the carrier. In this supply chain model, the business turns over logistics operations for
storing, packaging, and managing inventory as well as turning it over to the carrier for
shipment. Another way to think of it is that a 3PL becomes the middleman between
the business and the shipping carrier, taking care of the tedious aspects of shipping.
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This supply chain model has been around since the 1970s, and the rst 3PL providers
3PLs Brands Fulfillment Plans Integrations
were intermodal marketing companies that received packaged loads from shippers
Blog them Developers
and transferred Help
to railroads. Today, Login
the role of a Get expanded to
3PL provider has
Started
include services such as managing the movement of parts and materials from
suppliers to manufacturers. It also includes transferring nished products from the
manufacturer to the distributor or retailer.

In most cases, third-party logistics providers offer bundled supply chain services which
may include some or all of the following:

Warehouse storage
Transportation
Cross-docking
Inventory management
Crating and packaging
Freight forwarding
Shipment tracing/tracking
Reverse logistics (returns)

These services can be scaled and customized according to the business’s needs.
Generally speaking, businesses hire 3PLs when their supply chain becomes too
complicated for internal management. For example, if a small business signi cantly
expands their inventory as sales increase or grows through a merger or acquisition by
another company.

Pros of 3PL:
They offer innovative strategies customized to your business to optimize your
supply chain, making it more ef cient and cost-effective.
In most cases, 3PLs are able to reduce transportation costs by 5% to 25% compared
to a manufacturer running their own shipping operation.
They handle all regulations, both domestic and international, which makes it easier
for a manufacturer to test and enter a foreign market – they also manage customs
issues.
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A 3PL generally has the warehouse capacity to execute ful llment from multiple
3PLs Brands Fulfillment Plans Integrations
locations around the country or around the world.
Blog
It is generally Developers
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than to purchase orGet
lease warehouse
Started
space in markets you want to test or expand into.

Cons of 3PL:
Hiring a 3PL necessitates a loss of control over your shipping functions – one of the
functions that has the greatest impact on your customer satisfaction.
Not all 3PLs offer both domestic and international logistics services – some have
failed to grow and change with the industry.
There is always a risk that a business’s relationship with a 3PL provider will become
untenable which can lead to a signi cant loss of relevant market knowledge,
making it more dif cult to resume in-house management of shipping functions, if
necessary.
The cost to hire a 3PL is not always clear or up-front – it may be cheaper initially but
could become more expensive than in-house management if operations expand
suf ciently to allow it.

If you’re still not sure whether a third-party logistics provider is right for your business,
here are some examples of industries that can bene t from hiring 3PL providers:

Medical Devices – Medical device companies need to not only ship their products
from the distribution hub to individual locations, but those shipments must be
expedited and tracked through every step of the process with a chain of custody
that can be easily veri ed. This requires complex technology which is a skill 3PL
providers are able to provide.
Field Services – Service and repair businesses can bene t from 3PL services
because these services use integrated technology to create a database of
commonly ordered items to ensure that inventory meets demand. Businesses can
pick up parts directly from the hub or place an order for expedited delivery to the
speci c job site.
Retailers – Retail businesses are now expected to offer expedited delivery to their
customers due to the “Amazon effect.” A 3PL provider makes it possible to provide

same-day and next-day deliveries while managing the retailer’s costs.

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Hiring a third-party logistics provider could help you expedite your order ful llment
3PLs Brands Fulfillment Plans Integrations
produces while also reducing costs and improving customer satisfaction. Before you
Blog
commit, however, Developers
there Help
is another option Login
to consider – fourth-partyGet
logistics. Keep
Started
reading to learn more.

Understanding the Basics of

Fourth-Party Logistics
In a fourth-party logistics partnership, a business is basically outsourcing the entirety
of their supply chain management to a provider. The fourth-party logistics provider
oversees all of the different pieces of the supply chain puzzle including warehouses,
transportation companies, and agents. The goal is for the 4PL to be the single interface
for the business between all aspects of the supply chain and it is a concept that was
developed in the 1990s.

In most cases, the 4PL does not actually own warehouse or transportation assets.
Rather, it coordinates these services with vendors – it may also coordinate the activities
of 3PL providers that are handling various aspects of the company’s supply chain. The
difference is that 3PL providers are focused on day-to-day operations while 4PL
providers focus on integration and optimization. A 4PL provider may also be known as
a Lead Logistics Partner (LLP).

The primary bene t of hiring a 4PL provider is that the 4PL will be focused on
simplifying and streamlining logistics for the highest level of services for the best value.
The 4PL becomes your single point of contact for the entire supply chain which is ideal
for large business that have complex order ful llment operations.

Here is a quick summary of some of the bene ts a 4PL provides:

Simplicity. The 4PL acts as your single point of contact for the entire supply chain.

Neutrality. The 4PL has no assets to protect, so they act on behalf of the client.
Transparency. Most 4PLs have an open-book management style with no margins
on transportation; costs are controlled. 

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Optimization. Integrated technology and management systems ensures optimal

3PLs Brands Fulfillment Plans Integrations
ow of inventory and shipping processes.
BlogA combination
Savings. Developers Help
of logistics sourcing andLogin Get
reduced transportation spending
Started
leads to substantial savings across the board.
Productivity. Taking the weight of logistics off your shoulders expands your ability
to grow the company as you see t.

Now that you know a little more about what a 4PL does take a minute to review the
potential pros and cons for hiring a 4PL provider.

Pros of 4PL:
A 4PL becomes the “control tower” for the entire supply chain process, managing
everything from inventory to shipment.
Most 4PLs are non-asset based which means that their entire focus is on
simplifying and streamlining to logistics functions to improve value and reduce
costs.
Hiring a 4PL takes the burden of logistics entirely out of your hands with minimal
oversight required, freeing you to do the things it takes to grow and expand your
business.
A 4PL can manage complex supply chain models which include domestic and
international distribution, as well as managing multiple warehouse locations.
Hiring a 4PL provider could enable your business to provide same-day or next-day
shipping options for improved customer satisfaction.

Cons of 4PL:
Hiring a 4PL provider means you are giving up control over the logistics process as
well as the speci c functions – you’ll be relying very heavily on an outside provider
for one of the biggest functions of your business in terms of customer satisfaction.
There is potential that the 4PL could form biases with certain suppliers instead of
seeking out the most ef cient or cost-effective option.
Transitioning from a 4PL provider model back to in-house management of supply
chain services could be very dif cult for a large business.
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If you’re still not sure whether a fourth-party logistics provider is right for your business,
3PLs Brands Fulfillment Plans Integrations
here are some examples of industries that can bene t from hiring 4PL providers:
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Medical Devices – In the industry of medical devices, surgeons often make last-
minute orders and order multiple sizes of devices since they don’t know exactly
what they’ll need. A 4PL provider is better equipped to manage complex chain-of-
custody requirements and tight delivery schedules while reducing inventory costs.
Field Services – Integrative technology enables a 4PL to optimize all aspects of the
supply chain including determining the ideal parts, quantities, and locations based
on anticipated demand. Field techs no longer have to double as warehouse
operators and parts can be delivered in 30 minutes or less, improving ef ciency
and maximizing customer satisfaction.
Retail/eCommerce – By managing the entire supply chain network, 4PLs can
allocate inventory to meet customer demand and to reduce missed opportunities.
They also enable companies to provide same-day delivery regardless of location as
well as same-day replenishment.

Now that you know the basics about third-party and fourth-party logistics, you may
already have a sense for which one might be best for your company. Before making
your choice, however, you should take a closer look at the unique differences between
3PL vs 4PL providers.

3PL vs. 4PL – What’s the

Difference?

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A third-party logistics provider is focused on the day-to-day operations of your supply

chain logistics – it is more transaction-focused than a 4PL. That being said, a 4PL takes
it a step further by optimizing your entire supply chain, including any 3PL providers
your business might have hired. They take over the entire operation and become your
single point of contact which leaves you free to pursue other things that might help
grow and expand your business.

When an organization already has an effective, high-performance supply chain

strategy in place, a 3PL provider can provide the extra support needed to execute that
strategy ef ciently. This type of relationship usually requires a signi cant degree of
internal management to ensure that the 3PL’s performance meets business standards.
While the day-to-day functions may be out of your hands, you still need to retain a
certain degree of oversight. You should also keep in mind that because 3PLs are asset-
based, some companies may be more concerned with utilizing their own assets than
with providing competitive rates or more valuable services.

A fourth-party logistics provider is non-asset based which means that their focus is on

nding the ideal combination of service and value. These providers utilize integrated
technology to ensure a high level of visibility across the entire supply chain for both

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strategic and tactical analysis. Your business will still need to utilize some internal
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resources to oversee and manage 4PL performance, but it takes most of the weight off
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your shoulders Developers Help services
comes to optimizing Login Getcosts.
and minimizing
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There are a lot of factors to consider when it comes to choosing between a 3PL and a
4PL, so be sure to do your research before you decide. Keep reading to receive some
simple tips to employ as you start making your decision.

What’s Best for Your

Company?
Know that you understand a little more about third-party and fourth-party logistics
and how they differ, which option is best for your company? Unfortunately, there may
not be a clear-cut answer. You’ll need to take a deeper look at your business operations
to see where you are struggling and whether hiring a 3PL or 4PL provider might help.

Here are some of the signs that your company could bene t from hiring a 3PL
provider:

1. Your business is a startup manufacturer or B2C company in the range of $1 to $5

million.
2. Your business’s ability to produce and sell good is outpacing your ability to store
and ship them.
3. You are spending too much time ful lling orders when you could be focusing on
factors that in uence the growth of your business (e.g. marketing).
4. Your customer satisfaction levels are falling due to poor shipping and return
practices.

For many businesses, hiring a 3PL provider is the rst step as the business grows and
expands. Over time, however, it might make more sense to move to a fourth-party
logistics model. If your business has outgrown your in-house capacity for managing
supply chain services and you want to optimize the entire process for ef ciency and
controlled costs, you may do best with a combination of 3PL and 4PL providers. The
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bene t of hiring a 4PL is, of course, that you can also gain the bene t of 3PL services
3PLs
without having to manage them Brands
yourself. Fulfillment Plans Integrations

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Whether you are hiring a 3PL or a 4PL provider, you need to do your research to ensure
that you choose the company that is the best t for your business. Take the time to
delve deep into each company’s set of skills as well as their experience and reputation
in the industry. You’ll be turning over a signi cant portion of your business’s essential
operations, so you need to choose a provider you can trust 100%.

Every business is unique in terms of the services it provides, but all businesses have the
same basic needs. Optimizing your supply chain process for reduced costs and
improved customer satisfaction should always be a priority and hiring a 3PL or 4PL
provider could be your next step to doing so.

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