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3PL vs 4PL: What are these PLs, Anyway? Layers of Logistics Explained

3pl vs 4pl

Learning the difference between a third party logistics (3PL) and fourth party logistics (4PL) as well as 1PL and 2PL , and the rise of even Fifth Party Logistics (5PLs) is both confusing and highly debated among those in the supply chain industry.

3PL vs 4PL: The Great (LinkedIn) Debate

This is evident in a LinkedIn Discussion (which you can read in it's entirety here) where the debate of 3PL vs 4PL garnished 70 comments!

In the 3PL vs 4PL debate, Adrian Chen, an Advisory Board Member (Asia Pacific) at ISCEA -International Supply Chain Education Alliance had this great comment to finish the debate:

"Great comments from many herein, although it would be fantastic to hear more from other logistics professionals, but with gratitude, many of the comments hold true to the fact that we have an over-lapping of the functionality from within the 3PLs in "walking that extra mile" to accommodate many of the responsibilities that would assume a 4PL's role ultimately.

I see the generation of 4PLs evolving & advancing to an extent from the legacy 3PLs work scope with specific themes created to address value-add requirements with their clients' partnerships. The basic concepts of 3PLs are hereto stay (specifically the assets-based providers) & the evolution to extend services as a 4PL will be the deciding factor many shippers (small companies or large multinational corporations) stand on in their selection of a provision partner. Naturally, we do see spin-offs again, from a 4PL pint-of-view, whereby some retain specialty in specific knowledge & skill-sets (ie. IT / MRP / direct & indirect sourcing etc.), but yet there are many of the 4PLs who would be entrenched in the general provisions as "3PL managers" to co-ordinate the overall fulfillment processes B2B2C ultimately."

3PL vs 4PL: The Academic Definitions from CSCMP

The Council of Supply Chain Management Professionals’ glossary, defines both 3PL and 4PL, and is one I have found to be generally true across the board.

The CSCMP defines 3PL as follows:

3pl vs 4pl logistics layers explainedOutsourcing all or much of a company’s logistics operations to a specialized company. The term "3PL" was first used in the early 1970s to identify intermodal marketing companies (IMCs) in transportation contracts. Up to that point, contracts for transportation had featured only two parties, the shipper and the carrier. When IMCs entered the picture—as intermediaries that accepted shipments from the shippers and tendered them to the rail carriers—they became the third party to the contract, the 3PL. Definition has broadened to the point where these days, every company that offers some kind of logistics service for hire calls itself a 3PL. Preferably, these services are integrated, or “bundled,” together by the provider. Services they provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. In 2008 legislation passed declaring that the legal definition of 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 to the product.”

Third-party logistics providers are:

  • Freight forwarders
  • Courier companies
  • Other companies integrating & offering subcontracted logistics and transportation services

The CSCMP defines 4PL as follows:

Differs from third party logistics in the following ways; 1)4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners; 2)4PL organization acts as a single interface between the client and multiple logistics service providers; 3) All aspects (ideally) of the client’s supply chain are managed by the 4PL organization; and, 4) It is possible for a major third-party logistics provider to form a 4PL organization within its existing structure.

However, 4PL was oringally defined by Accenture as a trademark in 1996 and defined as "A supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.", but is no longer registered.

4PLs have also been referred to as "Lead Logistics Providers". Now a new crop of companies have emerged who are actual transportation companies too. While a 4PL is sometimes described as non-asset-owning service provider, their role is to provide broader scope managing of the entire supply chain.

Ok, So we Got 3PL vs 4PL, But What About all These Other "PLs?"

In the "PL" terminology, it is important to differentiate the 3PL vs. 4PL from the other logistics layers:

  • First Party Logistics (1PL). Concerns beneficial cargo owners which can be the shipper (such as a manufacturing firm delivering to customers) or the consignee (such as a retailer picking up cargo from a supplier). They dictates the origin (supply) and the destination (demand) of the cargo with distribution being an entirely internal process assumed by the firm. With globalization and the related outsourcing and offshoring of manufacturing, distribution services that used to be assumed internally tend be contracted to external service providers.
  • Second Party Logistics (2PL). Concerns the carriers that are providing a transport service over a specific segment of a transport chain. It could involve a maritime shipping company, a rail operator or a trucking company that are hired to haul cargo from an origin (e.g. a distribution center) to a destination (e.g. a port terminal).

Now, along comes the 5PL who sometimes define themselves as broadening the scope further to e-business.

You might question anything more elaborate than a 3rd party providing logistics consultation or management, no matter how advanced or far-reaching their service might be. So are they still 3PLs who just invented a fancy title to set them apart from the competition, or is there a real differentiation?

A 4PL is neutral and will manage the logistics process, regardless of what carriers, forwarders, or warehouses are used. The 4PL can and will even manage 3PLs that the customer is already currently using. Many 4PLs have addressed the huge requirements of electronic interface between numerous companies.

This area is where it's difficult to define Cerasis as a 3PL or 4PL. We are a non-asset logistics provider ,who provides technology and services focusing on over the road motor freight management, specifically offering a TMS with services around carrier relationship and inbound freight programs. So, loosely, we belong somewhere in between 3PL and 4PL. What would you call us, given that knowledge? And how would you define 3PL vs 4PL? Let me know in the comments below.

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Steve Norall

Steve Norall

VP Of Business Development at Cerasis
Mr. Norall oversees all aspects of driving new business into the Cerasis brand through strategic partnerships.
Steve Norall
Steve Norall
  • A favorite topic of mine. I have worked as a Mfg / Dist buyer/user of these services and in the outsourcer zones as well. I almost jokingly mention 5.5PL is a next generation with companies that really can or will understand and or create true customer driven, supplier sensitive e2e integration. Their reward is keeping and growing more business. ‘Change the Game’ – total cost, agile, creative,collaborative, innovative and as some say ‘womb to womb’ services. Have a seat at the decision making table. I think the 3PL world and discussions are mostly rear view historically thinking dialogs and actions. The definitions are old and what is needed is “next generation” forward thinking with vision to action doers having current 3PL/4PL , MFG (CM’s) and OEM sponsors.
    “Hell, there are no rules here – we’re trying to accomplish something.”
    Thomas A. Edison

  • Stephen Kelly

    Interesting views here in this subject . I am not entirely sure the definition are fully accurate. I do appreciate there are many variants to describe these services however there are many incorrect actual definitions around. Example. 4PL and LLP are different LLP is not a definition of 4PL.
    4PL’s can also use there own assets and bill some services direct. LLP tends to have zero assets and provides control towers, single point of contact, full supply chain visibility. There are also many more differentiators.
    I will try to post a comprehensive definition later.

    Interesting topic all the same

    Stephen

  • A true 4PL is independent and has zero ownership or employment affiliation with any asset or non-asset entity. I enjoyed the article, great visual and solid definition from CSCMP.

    • Rahul parikh

      I truly enjoyed reading this topic . Very nice topic for Supply chain executive and resourceful .

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  • Thorough Explanation…Nice One

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  • Sudhir Sah

    Very Good information on the 1/2/3/4PL Logistic and beautifully explained the importance .

  • Daniel LEE

    Good clarification. Know of a number of 3PLs who outsource their ‘overflow’ to another 3PL.
    One of them, a smart alex, call themselves 7PL – by adding 3 and 4. I always wonder what he got for his algebra and simultaneous equation in school.

    • Cerasis

      Ha! Very funny, Daniel!

      • Harry Patsos

        I think 4PL (or LLP) must be adding value to their clients through the use of tools like Control Towers, inventory management, network modeling etc

        Seriously though the era of 5PL is upon us: banks are going into SC finance and will be sitting above the 4PL layer.

  • Rafik Labib

    $PL is more into researching than actual day to day operation of logistics service providers (3PL) the question today is not the future trends of the 3PL, I guess the question is, what else 3PL should do for sustainability and competitive advantage.

  • Tariq Ghaus

    Based on the above explanation, I believe Cerasis stands as 4PL. Correct me if I’m wrong.

    • Cerasis

      At times, Tariq, we are a 4PL. We also serve as a 3pl in many instances.

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  • Rahul S Dogar

    we also faced the same challenge and then we started calling ourselves 3.5PL ( three & half) 🙂

  • In the recent years Exotrac has had more succcessful collaborations with 3 & 4PL’s that are offering our Yard Management System as an added value service to their customers.

    • Cerasis

      Interesting. How has this partnership worked? Would be curious to get some information to our VP of Biz Dev. Please fill out a General Contact form here on our site if you don’t mind.

  • Jason Morin

    Sounds like software is your core with some support services like brokerage, FP&A, etc. Not 3PL or 4PL.

  • CLM3Chip

    Hey Steve – thanks for the write-up. It seems to me a couple of the primary differences between 3PL and 4PLs are 1) 3PLs are more specialized in a certain niche of SCM than 4PLs and 2) 3PLs are focused almost purely on tactical approaches while 4PLs are more focused on strategic approaches (or more accurately strategic approaches that optimize the tactical approaches).

    I have a question for you – where would supply chain consulting firms like St Onge, Sedlak, Tompkins International, etc. fit in the supply chain management continuum? Are they purely 4PL firms, or they more like 4PL+ (5PL?) firms?

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  • Phil Lavin

    Steve
    The 5th PL is surely when the LSP’s can offer supply chain finance without burdening their own balance sheet. Nobody knows the supply chain better than a 3PL (4PL). The banks try to understand logistics but should stick to banking as ultimately their offering still hits the BS of either vendor or buyer. 3PLs who invest or partner smart technology platforms can ultimately offer the whole logistics package B2B giving them a huge competitive advantage over the 4PL scenario. It also opens up new targets for sales, CFO as well as the usual Logistics or SCD.

    • Cerasis

      Thanks, Phil. Great information!

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  • Naveen Srivastava

    Hi,

    Thanks for sharing this article. Can you name few big 4PL players in the market, which can provide global support.

  • Pradeep

    Pls explain about 5PL also………

  • Changlog Wu

    I would like to compare 4PL to Cloud Computing. 4PL is managing from a more holistic view, and will no longer involved into detailed execution of logistic service.

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  • Alphonse

    I strongly believe that, whichever term is applicable, be it 1,2,3 or 4 PL logistics, the incoterms, determines the service delivery.
    Therefore,terms like ex-works basically gives one a broader perspective to what logistical duties will be undertaken.

  • Dongjin Kim

    I think 4PL is 3PL to 5PL medium seems to be a process. If 3PL is logistics service provider through outsourcing of logistics, 4PL of essential corporate information sharing through the logistics consultancy that there should be.
    And I was 5PL, unspecified number of customers think, about logistics service delivery of global operations, including logistics consulting. In this regard, It is very important to the success of 4PL.
    Many companies are their information because I have to be very unwilling to be exposed to the exterior.
    Many modern logistics companies of customers at a time when information management and development into customers in 3PL a proven provider of logistics services is in the upcoming global logistics marketSee that there will be occupying. A huge logistics will be the birth of a dinosaur.
    5PL is of a number of customers by intelligence capabilities into a powerful weapon,
    The future is qualified to lead the (Web, Environment & Universe) industry.

  • Based on my own experience and within the context of my environment, I would hazard that you are more 4PL than 3PL.

    My own definition is fairly simplistic so please forgive me for this:

    We currently ”Manage Logistics Functions” (3PL?) for our client. However, we need to ”Manage Logistics Processes” (4PL?) in order to keep pace with the requirements of the client and environment. I have always considered that I am currently filling the space of a Lead Logistics Service Provider (LLSP) during this transition between 3PL (Functions) and 4PL (Processes)

    Our company has a wealth of capability in both the 3 and 4PL space that I can tap into. Taking the Resource Based View (RBV) of competitive advantage.

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