4PL and 3rd Party Logistics: Two Components of Successful Business

Logistics is an integral part of virtually any business, from traditional commerce to industrial manufacturing. In one way or another, all market players use the services of at least 3rd party logistics providers.

Analysts at Fortune Business Insights predict that by 2030, the total value of 3PL and 4PL logistics services will reach $2.18 trillion. This indicates a growing demand for transportation services.

And not without reason, as it is almost impossible to operate efficiently in business if your supply chains are not well-tuned or resistant to market turbulence. Recent challenges arising from environmental issues, politics, and armed aggression pose increasing risks to global companies.

That’s why it is crucial in 2024 to ensure high-quality and resilient algorithms for 3rd party logistics. Learn about the key difference between 3PL and 4PL and which model to choose, according to HH Express experts.

What is a 3PL?

The question “What is 3PL logistics?” is almost irrelevant now, as almost all types of businesses use providers’ services in this segment for their brand needs. In short, it is a service that allows delegating tasks of collection, storage, and transportation to third-party organizations.

They typically perform operations such as:

Concluding contracts.
Insuring cargo and transport vehicles.
Providing their own transport and drivers.
Collecting cargo from loading points.
Storing cargo in their own or partner warehouses.
Transporting goods, raw materials, etc., within the region or to other countries.
Providing tracking and tracing for each unit of cargo.
Negotiating with partners for last-mile delivery.

Formally, shipping 3PL involves the direct execution of logistic tasks. Its format can vary, including cargo transportation by trucks, trains, planes, or ships.

What is 3PL in Supply Chain

3PL logistics solutions refer to a direct contract between a hypothetical seller to deliver goods to customers. In other words, it is a set of services provided by one provider to the manufacturer, wholesale or retail distributor, and so on.

Overall, services can be divided into several types, with the following 3PL logistics examples:

Transportation: The carrier picks up the goods from point A and moves them to point B, not necessarily directly to the recipient but possibly to a partner’s last-mile delivery point.
Storage: Goods are received at the service provider’s warehouse, where they are marked, accounted for, and stored for a certain period.
Financial operations: The company acts as an intermediary, handling financial transactions between the client and their consumers and partners.
Accounting: The provider offers accounting and auditing services, simultaneously monitoring the transportation processes with its own employees.
Middle management: The service provider manages the client’s logistic, financial, and organizational operations independently and fully.

3PL in supply chain can be considered direct delivery services, unlike a 4PL logistics company, where services go beyond transportation. But more on that later.

What Does 3PL Stand For?

3PL stand for direct handling of goods. This includes receiving, storing, accounting, delivering, and transferring goods to last-mile logistics providers. In other words, all processes are based on this.

If we categorize the potential audience for third-party shipping companies, it includes entrepreneurs and businesses that are actively growing. Specifically, those with a limited turnover of goods, not too broad customer bases, and average profits.

They can handle organizational issues themselves, control item availability at sales points, and plan the timing and volumes of new batch deliveries. This is in contrast to corporations that may lack resources for independent control of these aspects and may require 4PL logistics companies.

What is a 4PL?

A 4PL logistics company can be considered a hypothetical intermediary manager that takes on the entire organization of logistics processes. It’s not just about direct transportation. It involves deep customization of operational components and IT elements.

Thus, the tasks and services of a 4PL company include:

Create and customize logistic chains.
Search and hiring 3rd party logistics providers.
Integration of the 3PL supply chain.
Implement IT solutions such as WMS, IMS, OMS, TMS, FMS, and data synchronization.
Building an automated task processing system.
Distribution of responsibilities among all participants in the chain.

In other words, a 4PL definition is a contractor handling the management of logistic processes for a client.

How the 4PL Process Works

Comparing 3PL and 4PL logistics, the latter tunes and organizes the supply chain based on the client’s business needs. It looks like this:

Retailer/manufacturer/supplier hires a 4PL company to meet their logistic needs, now merely delegating the task of logistic chain management to the contractor.

The service provider searches and hires several shipping 3PL subcontractors.

Logistic tasks are distributed among carriers in a unified operational space, where the 4PL provider focuses mainly on chain management.

The 3PL providers build their own chains to ensure proper transportation, storage, and goods accounting, hiring subcontractors for last-mile delivery.

Each 3PL provider plays a specific role. One subcontractor transports goods to the retail seller’s warehouses, another transports goods between several wholesale intermediaries, and yet another delivers specific groups of goods to end recipients.

This is supported by a powerful IT component that tracks shipments in real-time, builds optimal routes, and calculates risks. It also automates various processes, such as order processing, financial calculations, and document workflow.

What Is the Difference Between 3PL and 4PL Supply Chain?

Comparing 4PL vs 3PL, we can observe that they are designed for completely different logistics volumes and business types. While the latter is used by virtually everyone, including small and medium businesses, the former is suitable only for large corporations.

The key difference between 3PL and 4PL logistics lies in their operational principles. A 3PL subcontractor simply receives tasks for transporting goods (using various methods: by truck, rail, air, or water). Meanwhile, a 4PL globally adjusts the concept of logistic chains and involves direct performers in its execution.

What are the benefits of 4PL in supply chain management?

4PL companies organize logistic processes for corporations and essentially build logistic chains. They act as interpreters of a business’s transportation needs, implementers of the digital component of freight transport, managers of direct performers, and analytical aggregators optimizing logistic processes.

How does 3PL improve customer client supply chain?

3PL stand for transporting goods or products to recipients, more precisely, to warehouses from which the buyer can receive the shipment. To enhance this process, 3PL providers engage local delivery companies that conduct last-mile deliveries, directly delivering goods to customers.

Why is 3PL important in supply chain?

If the 3PL supply chain is excluded from the global freight transport system, the task would fall on the shoulders of direct manufacturers or distributors. Consequently, transportation costs, personnel costs, and delays in deliveries would increase when demand exceeds supply, leading to new challenges for businesses.

This would affect everyone:

The manufacturer, who would have to deliver goods themselves.
The intermediary, who would not receive goods on time or would be unable to optimize its final cost.
The consumer, who would bear the logistical costs through the product price.

A significant portion of the business’s economic component related to logistics costs relies on 3PL.

Conclusion

Summarizing the above, we draw several conclusions:

3PL and 4PL logistics are essential for business and are not mutually exclusive.
4PL logistics focuses on building global supply chains and acts as managers for corporations that lack the resources or desire to handle it independently.
3rd party logistics involves direct order execution for transportation, though it includes a range of third-party services.
Developing businesses are better suited for 3PL, as providers’ services are affordable and efficient.
Corporations with large freight volumes potentially need 4PL subcontractors to build the entire logistic process efficiently, including the IT component.