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3PL vs. 4PL Logistics: An Overview

What is 3PL, 4PL and how do these two logistics models differ from each other? In this article, we get to the bottom of the most important differences and explain when which model is more suitable for you.

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Content

Chapter 01 – All logistics services at a glance
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Chapter 02 – Differences between 3PL and 4PL
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Chapter 03 – 3PL or 4PL – Which Model is Suitable for You?
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Chapter 04 – How do you choose the right provider?
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All Logistics Services at a Glance

1PL – First Party Logistics

Companies that rely on first-party logistics store their goods in their warehouse and transport them to their customers.

A 1PL approach is usually utilized in small production companies with purely local distribution. These companies are completely self-sufficient in the handling of their logistics and are not dependent on the availability of third parties, but are also severely limited in terms of capacity and flexibility.

2PL – Second Party Logistics

A second-party logistics strategy is usually the first step in outsourcing logistics tasks. The 2PL provider takes over the transportation of the goods to the end customer.

In some cases, a 2PL also offers the storage of goods but is limited to rudimentary standard services and usually only offers a very limited technical infrastructure.

1-5pl degree of outcourcing vs strategic support

3PL – Third Party Logistics

If a company works with a 3PL, it outsources a large part or even the entire logistics process to an external logistics service provider. The 3PL provider acts as an “intermediary” or interface between the retail companies and their end customers.

The 3PL provider organizes and handles the receipt of goods at the warehouse as well as the storage, picking, and organization of the end customer shipment. In addition, many providers also offer returns processing. The warehouses belong to the 3PL provider itself. Read more in the article “What is a 3PL?“.

4PL – Fourth Party Logistics

A 4PL logistics service provider, also known as 4PL provider, takes over the planning, control, and coordination of all logistical warehousing, picking, and shipping processes for its customers without using its physical resources such as warehouses, transport vehicles, or similar equipment.

Instead, fourth-party logistics providers rely on a carefully selected network of different logistics service providers, such as various 3PLs, freight forwarders, and shipping companies, to handle the logistics processes.

As the fourth party, they ensure that data exchange and the flow of goods between retailers, warehouses, and shipping providers through to the end customer functions seamlessly. They offer their customers advanced technology that enables them to integrate many different sales platforms and other technical systems into one platform and control them there.

Read more in the article “What is a 4PL?”.

1PL - 5PL Comparison Infographic

5PL – Fifth Party Logistics

The Fifth Party Logistics model is a new, strongly technology-driven development in the logistics industry. 5PL providers fulfill all the criteria of a 4PL service provider but also offer management of all elements of the supply chain.

In contrast to 3PL and 4PL service providers, which focus on logistics tasks, a 5PL provider acts as a designer and orchestrator of the entire supply chain.

In addition to fulfillment and shipping, a 5PL also takes care of purchasing and supplier procurement (“sourcing”), negotiates purchase prices, checks production quality, or coordinates delivery by sea or air freight.

Differences between 3PL and 4PL

When looking for a fulfillment partner, it is essential to compare 3PL and 4PL models. Both approaches have advantages and disadvantages that may or may not suit your company depending on your needs.

Some fulfillment service providers also move between a 3PL and 4PL model. An individual comparison between providers is therefore always advisable.

Characteristics of Third-Party Logistics (3PL) Providers

Process control: 3PL service providers have full control over their processes, technologies, and employees. This allows them to react flexibly to their customers’ requirements.

Direct Communication: When working with a 3PL service provider, you maintain direct communication with the warehouse. You can ask questions, make adjustments, and help shape the logistics processes.

Operational focus: 3PL models focus on daily operations and the efficient handling of logistics processes.

Characteristics of Fourth Party Logistics (4PL) providers

Strategic focus: 4PL providers have a broader focus. They not only optimize logistics processes but also consider a large part of your supply chain. That allows them to make long-term strategic decisions and act as account managers for consulting and growth concerns.

Coordination and outsourcing: 4PL providers coordinate cooperation with various logistics service providers. They can outsource processes to increase efficiency and quality. A good 4PL provider ensures that it only includes the best 3PL partners in its network and works closely with them. This way, customers benefit from excellent operational processes and have an extra pair of eyes for quality control.

Direct contact to the warehouse: Competent 4PL partners establish a direct connection to the warehouse for you so that you can always get in touch with your contact person if you have any operational concerns.

Focus on technology: 4PL companies offer you flexible, state-of-the-art software that can be further developed in an agile manner.

3PL or 4PL – Which Model is Suitable for You?

3PL

Company size: In principle, for companies of any size. However, for large companies (“enterprise”) with sales of around €60 million or more per year and over 100 employees, it may be more cost-efficient to handle logistics in-house again.

Supply chain complexity: Suitable for companies with a moderate to complex supply chain with required support for warehousing, transportation, and fulfillment. 

Strategic goals: Companies that want to fully outsource warehousing and transportation and thus optimize their logistics on a day-to-day basis (or have them optimized).

Scope: For companies with a “rudimentary” fulfillment requirement, i.e. only want to outsource warehousing, picking, and transport.

4PL

Company size: Ambitious, fast-growing e-commerce companies that want to scale significantly (further). For smaller companies without a dedicated operations team and with fewer than five employees, an in-house set-up or collaboration with a traditional 3PL is usually sufficient.

Supply chain complexity: Companies with a moderately complex supply chain and various sales channels that want holistic management and advice on their logistics.

Strategic goals: Companies that aim for comprehensive supply chain management optimization and access to (global) scalable capacity. 

Scope: Companies that want complete coordination, monitoring of fulfillment processes, and strategic consulting beyond the operational business.

How do you choose the right provider?

Choosing the right fulfillment partner is crucial, but with suitable support, it doesn’t have to be complicated.

everstox offers a platform that combines B2C and B2B fulfillment, multi-carrier shipping, and modern software to simplify your logistics.

Not sure if we are the right fit?

We provide free expert advice so you can make the right decision.

4PL | Den richtigen 4PL Anbieter finden

FAQs about 3PL & 4PL in Logistics

What is the difference between 3PL and 4PL logistics services?

A 3PL company takes care of the management and execution of warehousing and transportation and is therefore a more operational fulfillment partner.

In comparison, 4PL providers do not have their own logistics infrastructure but act as strategic consultants to optimize the entire supply chain management and work closely with their network of 3PL companies.

What are the advantages of using a 3PL service provider for e-commerce companies?

Working with a 3PL provider offers several advantages. By outsourcing logistics services, companies can save a lot of financial resources, as working with a 3PL provider often leads to greater cost efficiency through economies of scale and dedicated resources.

Companies also save on time investment, as outsourcing allows them to focus more on their core business. As the company grows, 3PL service providers can scale capacity, allowing the company to remain competitive for longer.

When should a company consider switching to a 4PL service provider?

Switching from a 3PL to a 4PL provider depends on several factors. Firstly, the size of the company is crucial. If the company has matured into an established, growing company, it is advisable to consider a 4PL provider for a long-term collaboration.

How can 3PL and 4PL services improve supply chain efficiency?

3PL

Resource optimization: 3PL providers offer various logistics services such as warehousing, order picking, and transport. Outsourcing these tasks means that companies have more internal resources at their disposal and can focus more on their day-to-day business, e.g. marketing.

Scalability: E-commerce logistics is subject to both predictable and spontaneous fluctuations. With a 3PL partner, companies can better adapt their logistics to market changes and increase capacity or reduce capacity utilization as required.

Expertise and technology: 3PL service providers use various technologies that help to control logistics activities based on data and automate tedious manual processes. This includes, for example, the use of advanced warehouse management systems.

4PL

Integrated control: Compared to 3PL providers, 4PL providers take over the entire control and strategic optimization of a company’s fulfillment processes. In concrete terms, this means that they take over the coordination of various logistics service providers and use innovative technologies to reduce the complexity of these logistics processes.

No assets necessary: Fourth-party logistics providers do not have their own warehouses or transportation vehicles. Instead, they take over the coordination and management of other logistics service providers and use their years of operational logistics expertise to offer their customers the best possible service.

Efficiency and flexibility: Just like 3PL providers, 4PL providers can also reduce costs for their customers by ensuring flexible scalability and a rapid response to market fluctuations. The outsourced warehousing and transportation processes supported by technology also give the company more flexibility.

What risks are associated with outsourcing to 3PL and 4PL service providers?

Outsourcing to third parties is always associated with risks.

In principle, cooperation is always associated with a dependency on the 3PL or 4PL, as the latter has control over all logistics processes and the expertise is not built up internally, meaning that the company placing the order runs the risk of losing its own logistics know-how.

The collaboration also requires a high degree of trust. Opportunistic behavior on the part of the external partner could have negative consequences, such as financial losses or damage to the company’s image.

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