With the rise in global commerce, trade agreements, customer demands and advanced technology, the number of logistics service providers has increased. You must have heard about the term-3PL, which stands for third party logistics provider. It refers to outsourcing your logistics processes to a third party. But were you aware of 4PL and 5PL? Not exactly, right? In this blog ahead, let’s dive into understanding the various types of logistics service provider. We will also look at the benefits that each has to offer.
What is 1PL and 2PL?
1PL and 2PL are logistics services providers that offer standardized services. Both give you as a manufacturer the right to control directly and oversee other operations. Let us understand these in more detail below:
1PL (First-party Logistics): Suppose you are a manufacturer who has goods to transport. You would require a mode of transportation to do so. Now, when you are using your own vehicles such as trucks for the movement of goods, it is called a 1PL. The 1PL involves only you and your customer. This is the direct transportation service that you provide yourself to your customers.
2PL (Second-party Logistics): A 2PL basically means outsourcing your logistics tasks to another party that provides warehousing along with transportation service. Let us understand this with a 2PL logistics example: Consider the scenario where you have goods to transport but you also require a warehouse for their storage. In this case, a 2PL is used which is an outsourcing method of getting transportation and warehousing service. The 2PL generally provides logistics resources like carriers, trucks, forklifts and warehouses and handles the requisite operations.
What are 3PL, 4PL and 5PL?
3PL, 4PL and 5PL are logistics services providers that offer customized services aimed to meet the specific customer requirements for your business. These logistics providers do not provide much direct control but help save on huge costs. Let us understand these in detail below:
3PL (Third-party Logistics): A 3PL is a commonly heard logistics term. It is often referred to as order fulfillment. In 3PL, all the major logistics processes like warehousing, inventory management, packing, shipping, risk management and other associated transportation services are taken care of. These services can be customized according to specific customer requirements.
4PL (Fourth-Party Logistics): 4PL and 5PL are one step above the listed logistics providers. Let’s talk about 4PL first. In 4PL, the outsourced provider oversees the entire supply chain process. Generally, 4PL is preferred by clients when they wish to have a full-fledged company that handles every aspect of their logistics.
The 4PL provides all the 3PL services and additional services like project management, logistics strategy, sourcing & negotiation among others. 4PL aims to provide their clients with the most optimal solution for their logistics needs. It is like a single point of contact or one window operation provider that provides the major logistics services.
5PL (Fifth-party Logistics): A 5PL is by far the most advanced form of logistics service provider. So, what is 5PL in supply chain? It is relatively a new term and form of logistics service provider in the industry. When there are various supply chains that become interconnected to form a supply network, there comes the role of a 5PL. The 5PL helps automate processes by leveraging technology, automation, supply chain visibility and others.
Let us understand this with a 5PL logistics example. Suppose you are a manufacturer and want your goods to reach the market. A 5PL will serve you as a full-fledged in-house logistics service provider. They will have a logistics company, packaging services, warehousing and transportation services. 5PL is the most advanced because it uses technology, automation, and big data to improve logistics processes.
Key Differences Between 1PL, 2PL, 3PL, 4PL and 5PL
The various logistics service providers have their own pros and cons. Understanding the various key differences will help you choose the right logistics provider that suits your business. Let us have a look at some of the key differences between these in the table below:
| 1PL | 2PL | 3PL | 4PL | 5PL | |
|---|---|---|---|---|---|
| Characteristics | Manufacturer directly transports the goods | Hires a freight provider offering transportation and warehousing | Hires a logistics provider who provides all 2PL functions plus inventory management. | Manages the logistics and additional services like project management, logistics strategy | The most advanced form of service provider that manages supply chain networks like 3PLs +4PLs |
| Benefit | Direct control over logistics processes | Control and decision making | Access to expertise and help save on costs | Serves as a single point of contact, cost savings | Faster, advanced and accurate logistics solutions |
| Logistics Services Offered | Transportation | Transportation and Logistics | Transporation, Warehousing, Packaging, Inventory management and others | Additional services like project management, logistics strategy, sourcing & negotiation | All essential logistics services that leverage technology, automation, supply chain visibility to automate processes |
| Customization in services | No | No, a 2PL only provides standardized services | A 3PL provides customized and specialized logistics services | A 4PL provides customized and value- adding services to provide end-to-end visibility | A 5PL provides customized services that leverage advanced technology |
Conclusion
By now you must have understood the main differences between the various logistics services providers. While 1PL and 2PL provide standardized services and offer direct control, 3PL, 4PL and 5PL tend to provide customized and advanced logistics services.
Now, it is up to you whether you want direct control or wish to save on costs and leveraging the expertise of third parties.