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What is the difference between 3PL and 4PL?

If you're unclear on what differences separate 3PL vs. 4PL providers, you'll want to read this explanation of how these two types of logistics compare to one another.

Most logistics professionals are familiar with third-party logistics (3PL) as the outsourcing of one or more aspects...

of procurement or fulfillment to an outside organization that specializes in that area.

Many companies use FedEx or UPS for package delivery and freight companies such as J.B. Hunt for larger shipments. These are 3PL providers that supply transportation and delivery services. Other 3PL providers might handle the details of warehousing, import/export logistics or the entire distribution process. These providers can deliver efficiencies and superior performance due to their specialization and economies of scale.

The difference between 3PL and 4PL

So what is the difference between a 3PL and 4PL (fourth-party logistics) provider? A 3PL provider is expected to provide all of the contracted services through its own resources. When the 3PL provider outsources any part of its duties to yet another party, the 3PL providers then becomes a 4PL provider.  

If supplier x contracts with another company for warehousing the goods, supplier x is now a 4PL.

Ultimately, the difference between a 3PL and 4PL is that the 4PL acts as a liaison between the client and multiple service providers, whereas a 3PL offers its own logistics services directly to the client. So for example, your company might contract with logistics supplier X to handle shipping and remote storage of your products across the southern United States. If supplier X then contracts with another company for warehousing the goods, supplier X is now a 4PL provider. 

Note that there is some controversy over these definitions, and some observers even define the cargo owner as a 1PL provider, the carrier as a 2PL provider, and the 4PL provider as more of an agent or general contractor that supervises multiple service providers. Some specify that the 4PL provider must be non-asset-based or mode and vendor neutral.

Both 3PL and 4PL services enable core focus

The labels themselves don't really matter much in light of a 4PL provider's ability to offer more options for manufacturers to address the logistical needs of the business. Many manufacturers, in fact, recognize that logistics -- including transportation, warehousing, distribution, and even sales and customer service -- might not be core competencies.

Outsourcing these tasks by contracting with a specialist not only saves money and provides a higher level of service, but it also frees up internal resources to focus on those aspects of the business that are core competencies, whether that's production, design, engineering, marketing or another competitive strength.

One caveat: Both 3PL and 4PL services are critical to customer service and play a key role in the customer experience. So be sure to select and use reputable, reliable logistics suppliers that will deliver great service to customers to help build your own company's brand and reputation.

This was last published in November 2017

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