3PL vs 4PL
In the modern globalized world of logistics, the shipper has more options than ever. In a market with thousands of third party logistics (3PL) providers it can be a daunting task figuring out which provider belongs where along each link of your supply chain. Added to that are a bevy of acronyms requiring a glossary of terms to decode. In its simplest essence, any shipper looking to use a 3PL or 4PL is looking to refine their process and simplify its management.
What are the PLs?
We never really talk about 1PLs or 2PLs as 1PLs or 2PLs, but they do exist, and it is important to define each layer of the supply chain so we can better understand the roles of 3PL and 4PL providers.
First Party Logistics (1PL): This is where it all begins. The 1PL is the shipper, beneficial cargo owner, or consignee. They would dictate every aspect of the manufacturing and distribution process from origin to end point.
Second Party Logistics (2PL): These are the carriers. From the steamship & airlines, to the railroad operators, to the trucking companies hauling the freight.
Third Party Logistics (3PL): The freight forwarders, customs brokers, couriers, trucking companies, and warehouses. A 3PL is a firm that shippers outsource any number of services to. It’s a broad term but if we crystallize it to the legal definition a 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 of the product.”
Fourth Party Logistics (4PL): The role of a 4PL is to act as a manager, consultant, and adviser on some or all of the above services including order management and planning. Their intended purpose is to act as a single interface between clients and multiple vendors/service providers, overseeing and coordinating the entire supply chain process. So, instead of the shipper contacting all of their 2PL & 3PL services, the 4PL would act as the liaison between some or all of those providers, managing the flow of goods, information, and funds across the entire supply chain. The 4PL may also be responsible for optimizing the supply chain through strategic planning, forecasting, and risk management, ensuring that the client’s needs are met efficiently and effectively.
Here are 5 differences between 3PL and 4PL providers:
1. Network: While there are thousands of 3PL providers out there, not all of them are built the same and few share the same strengths and weaknesses. Many 3PLs will engage their network of carriers, promise them x amount of cargo, and then resell those lanes to new and existing customers. By nature, each company becomes stronger and more competitive on whatever respective lanes they are best able to fill. But what about the lanes they are having a tough time selling? Those prices tend to go up while the service suffers.
Since 3PL providers have long established networks they often aren’t nimble enough to open up new competitive routes immediately and they aren’t often willing to advise you to use a better equipped freight forwarder. 4PL providers aren’t locked in to carrier networks and their best interest is to get each of your lanes in the most capable 3PLs hands. This presents shippers with a much wider offering of services and a far deeper pool of resources and cost references.
2. Time Management: 3PL providers can handle anything from inland trucking to the port, all the way to high-end warehouse management solutions and all point in between. If a shipper is working with one 3PL that is handling all aspects of their supply chain than communication may not be an issue. However, most likely, they’re dealing with multiple 3PLs even if they aren’t thinking of them in those terms. If you’re using a separate freight forwarder, trucker, customs broker, and WMS you’re already up to four different 3PL providers. Instead of contacting multiple 3PLs as your goods travel along your supply chain, a 4PL streamlines the process to a singular portal.
3. Data Security: There’s no greater time than the present to lock-up your supply chain data security. With the ever growing risk of hacking and data breaches, shippers have to take control of who sees what and when. In a model where a shipper is using multiple 3PL providers, it is not uncommon for crucial private data (invoices, packing lists, customer addresses, manufacturing facilities) to be shared via email and fax between multiple companies and organizations. A 4PL can ensure that your vendors only see the documents they need to see to perform their intended role.
4. Scalability: Is the 3PL you’re currently working with able to grow with your company’s changing and evolving needs? The 3PL that was moving 100 40’s a year between New York & Shanghai then trucking them to your warehouse in Greater Boston may be doing a great job now, but how would they do with lanes added to France, Brazil, and Australia, along with national routing for your inland trucking? It’s unlikely that they’re the best service provider along all of those lanes.
A 4PL isn’t tethered to a network of carriers. They can look at the entire scope of your supply chain and place each lane with the appropriate service provider. This translates to better service, greater efficiency, as well as reduced time and cost.
5. Benchmarking: In last week’s blog we covered just how important it is to benchmark your supply chain and your providers. While 3PLs do benchmark their own services, what they’re looking at is inherently different than what a 4PL is looking at. The non-asset based 3PL is concerned with two major things: agent performance and customer volume. By nature, the data set that they’re looking at is smaller than the frame.
Conversely, a 4PL is benchmarking against all 3PLs instead of just their agents. Instead of leveraging segments of freight, they’re leveraging the industry’s performance against itself. That’s because unlike a 3PL, a 4PL doesn’t typically have the same conflicts of interest that a freight broker may have.
Where Does a Managed Transportation Solution (MTS) Fit?
In addition to the 1PL, 2PL, 3PL and 4PL you also have Managed Transportation (MTS). A Managed Transportation Provider (MTP) is a type of logistics service provider that specializes in managing all aspects of transportation for their clients. MTS providers typically use advanced technology and data analytics to optimize transportation networks, select the best carriers, and manage all transportation operations. They act as a single point of contact for all transportation providers and manage all transportation-related tasks, including routing, tracking, and freight payment.
While MTS and 4PL services share some similarities, MTS providers focus specifically on transportation management.
One of the key advantages of an MTS is that it allows businesses to outsource their transportation management, freeing up resources and expertise to focus on other core business functions. Additionally, MTS providers can use their expertise and technology to optimize transportation networks, reduce transportation costs, and improve delivery times. By leveraging the resources and expertise of an MTS provider, businesses can gain greater visibility and control over their transportation operations, while also reducing risk and increasing efficiency.
Another advantage of an MTS is that it can provide greater flexibility and scalability than traditional transportation management models. MTS providers can quickly adjust transportation networks to meet changing demand, scale operations up or down as needed, and adapt to new trends or challenges in the market. This flexibility can be particularly beneficial for businesses with seasonal demand or rapidly changing logistics needs.
Overall, MTS providers offer a comprehensive and specialized approach to transportation management that can help businesses optimize their transportation networks, reduce costs, and improve efficiency. By partnering with an MTS provider, businesses can gain access to advanced technology, expertise, and resources that can help them achieve their logistics goals and grow their business.
If you’re interested in learning more about how FreightPlus can help you optimize your supply chain, please contact us to learn more about our Managed Transportation Solution.