The definition of Third Party Logistics and the differences between 1PL, 2PL, 3PL, 4PL and 5PL
Have you heard the term Third Party Logistics (3PL) and wondered what it means? 3PL (sometimes referred to as TPL) is when a company outsources elements of their distribution, warehousing, and fulfilment to third parties. Companies that specialise in 3PL provide integrated fulfilment, warehousing and transportation services which can flex as required depending on the customer’s requirements.
While the use of 3PL providers has been prevalent in large organisations for years, the use of 3PLs is on the increase thanks to the likes of Alibaba, Amazon and eBay providing a relatively straightforward route to market for small to medium-sized businesses. In organisations of this size, operating their own fulfilment, warehousing and distribution services is usually far more costly than using a 3PL specialist that can provide on-demand services that scale with market demands.
So that covers 3PL, but while this is the most widely used Third-Party Logistics term, you may also come across other terms such 1PL, 2PL, 4PL and 5PL. Read on to find the definition of each and their main differences.
1PL: First-party Logistics Provider
A 1PL first party logistics provider is a company or individual that needs to have cargo, freight, goods or products transported from one point to another. Examples of 1PLs would be the cargo sender and the cargo receiver.
2PL: Second-Party Logistics Provider
A 2PL is an asset-based carrier that is responsible for the method of transportation. Examples of 2PLs include shipping lines which operate the ships, airlines that operate the planes and haulage companies that operate vehicles. Note the shipping line, airline or haulage company may own, lease or charter their ships, aircraft or vehicles rather than own them outright.
3PL: Third-party Logistics Provider
As mentioned before, a 3PL provides outsourced or ‘third party’ logistics services to companies for all or part of their supply chains such as fulfilment, storage and distribution or additional services such as customs brokerage, logistics software such as analytics and track and trace.
For example, John Good is a 3PL service provider specialising in warehousing, storage services and sustainable, international freight handling solutions but we also provide fulfilment services such as real-time stock data, total inventory control, returns management, same day dispatch and delivery to the point of sale. With port-centric warehousing services from Felixstowe, we are ideally placed to handle all kinds of cargo arriving at the UK’s largest container port and handling onward distribution.
4PL: Fourth-party logistics provider
A 4PL (sometimes referred to a Lead Logistics Provider) is an independent company who will manage a customer’s supply chain by orchestrating the resources and technology of its own organisation along with the services of other companies such as 3PLs to create the best solution. 4PLs are similar to 3PLs, yet they take on a more strategic role in helping a customer meet its organisational goals and have accountability for the entire supply chain. Their role usually includes analysing vast amounts of data, managing transport and warehouse operations, managing third party suppliers and generally operating any other section of the supply chain to optimise efficiency.
Crucially a 4PL needs to be impartial, while they may be able to offer the services its clients need, they need to compare those services and costs to that of their competitors and work in the best interests of their customer at all times.
John Good, for example, often performs 4PL services to streamline supply chain processes, such as consolidating multiple suppliers and carriers to provide a single-invoice solution.
5PL: Fifth party logistics provider
5PL is a relatively new term in the logistics industry and reflects the development of full logistic integration through many outsourced providers. Critical to success in achieving this is the effective integration of IT and computer systems to ensure real-time visibility and control of the entire supply chain no matter how many different suppliers are involved.
Where can I find more information on 3PL services?
Please contact our local specialists who will be happy to advise on the best third-party logistics options for your business. We have dedicated teams of experienced professionals all over the UK.