You’re probably familiar with the term third-party logistics (3PL). But did you know there are other logistics services like second-party logistics (2PL) and fourth-party logistics (4PL)?
So, what are the differences, and which one is the best? Read on to find out.
Successful eCommerce Needs Strong Logistics
An eCommerce business lives or dies at the hands of its logistics. Smaller local businesses can operate fine with first-party logistics, handling deliveries in-house. However, many eCommerce businesses get customers from all over the world, making in-house deliveries nearly impossible.
If you can’t get products to customers safely and punctually, customer satisfaction will drop and you’ll likely lose sales. To ensure that doesn’t happen, you must partner with great logistics solutions providers.
What’s The Difference Between 2PL vs 3PL vs 4PL?
The main differences between 2PL, 3PL and 4PL are the complexity and parties involved. Here’s a quick breakdown of each logistics operator type and how many parties are involved:
- A 2PL involves your company and the freight forwarding or transportation service. This means you handle receiving and order processing yourself, only working with the shipper when you’re sending things out to customers.
- A 3PL is more hands-on in that the third-party logistics provider takes over most, if not all, of your order fulfillment process. The 3PL company will receive, store, pick, pack and send items out to customers through shipping companies. 3PL companies are the most popular logistics operator with eCommerce businesses because companies can be hands-off with their logistics and inventory management operations.
- A 4PL expands the scope of 3PLs by managing your company’s entire supply chain management. This means offering a wide range of services, including finance, procurement, IT and logistics assistance.
2PL – Second-Party Logistics
Second-party logistics are mostly responsible for transporting your items from the warehouse to customers. As far as logistics go, second-party logistics operators have the simplest task since they only do one thing – get your products to customers.
2PL Pros
The advantages of working with 2PL companies are:
- You can reduce your business workload.
- You can minimize risk of product loss or damage.
- You can offer multiple methods of transportation you couldn’t offer in-house.
2PL Cons
Meanwhile, the disadvantages of working with 2PL companies are:
- Your shipping performance is entirely dependent on the shipping carrier
- 2PL companies don’t support other aspects of your logistics operations, like warehousing.
3PL – Third-Party Logistics
Third-party logistics are much more involved with your operations since they’re responsible for receiving, storing, picking, packing and sending your products. Some of them even handle customer returns and complaints.
Lots of companies work with third-party logistics companies since they don’t have the space or budget to run their own warehousing operations. Instead, they send their products to 3PL fulfillment centers where the logistics operator will take care of everything.
Some of the best print-on-demand companies also offer 3PL-like services where they take customer orders, print the items and send them out without the client’s intervention.
3PL Pros
Here’s what you get by working with 3PL companies:
- You can outsource an entire section of your business to experts with years of experience.
- You get timely shipping and professional warehouse management.
- You can focus on other aspects of your business.
3PL Cons
On the other hand, 3PL also has some drawbacks, like:
- Your business will be dependent on a vendor to ship items out.
- It can be tough to change the way your vendor works if you receive complaints.
4PL – Fourth-Party Logistics
A fourth-party logistics provider is even more hands-on in managing your supply chain operations. They offer integrated logistics solutions – they don’t just work with what’s there but also come up with new ideas and offer additional services to address possible issues to achieve efficient supply chains.
Essentially, fourth-party logistics companies are supply chain operators and consultants. They’ll advise you on whether you need discreet shipping and packaging for products, what kind of shipping you should offer and many other aspects of logistical operations.
4PL Pros
Working with a 4PL service provider gives you most benefits offered by a 3PL, in addition to these perks:
- You get the best shipping rates without negotiating with carriers yourself.
- You can receive advice on how to manage a comprehensive supply chain solution.
- You can take advantage of their professional project management services.
4PL Cons
Meanwhile, the disadvantages of working with 4PLs are:
- 4PLs have higher costs, which makes them prohibitively expensive for smaller companies.
- You have less say in your supply chain operations since 4PL companies are more like strategic partners than vendors.
Examples and Practical Applications
How these logistics providers work might seem a bit abstract, especially if you’ve just now heard about them. Here, we cover simple examples of how 2PL, 3PL and 4PL companies work.
How 2PL Works
If Company X works with a second-party logistics provider, how it gets goods to customers would go something like this:
- Company X receives its products from the vendor or manufacturer.
- The company’s warehouse team stores products in the warehouse.
- When an order comes, Company X’s warehouse team picks and packs the items in preparation for shipping.
- The warehouse team takes the products to a shipper for delivery.
- The shipping company sends the items to customers.
How 3PL Works
If Company X works with a third-party logistics company instead, you’d see a process like this:
- Company X sends its products to the 3PL company’s fulfillment center.
- The 3PL provider’s warehouse crew stores the product.
- Company X’s online storefront forwards orders to the fulfillment center, where the warehouse crew picks and packs items for shipping.
- The 3PL company’s warehouse team passes the items to a shipping company.
- The shipping company takes the items to customers.
How 4PL Works
If Company X works with a fourth-party logistics company, the workflow will look a lot like the 3PL version. However, the 4PL partner will find the most affordable shipping companies and may communicate with Company X’s vendor to increase or decrease production, depending on how many products are in the warehouse.
2PL, 3PL and 4PL By the Numbers
Costs matter in choosing a logistics strategy, especially when it comes to prices. 2PLs are usually the cheapest because they only ship your items. Depending on the company, you might pay for every shipment individually or get subscriptions for discounted shipping costs.
3PLs usually work on a monthly or yearly subscription model, but some may charge per item delivered. Costs vary depending on the size of your business and can be as low as a few cents per item to thousands of dollars per month.
4PLs are the most expensive of the three options since they offer consultancy services and logistics assistance. 4PL companies usually offer custom pricing, so each partner will charge you differently.
What Software Does Your Business Need?
Your business needs different types of logistics providers and software, depending on your business goals and needs. A 3PL is the most common option, but you can opt for a 2PL if you’re already doing in-house logistics management or a 4PL if you want to outsource your entire supply chain and logistics process.
If you don’t know which one to pick, meet with 3PL consultants and ask them about which option is best for your company.
Key Takeaways
The main difference between 2PL, 3PL and 4PL companies is their scope of work. 2PL providers are essentially shipping carriers, 3PL companies take over your inventory and warehousing operations while 4PL companies control almost your entire supply chain network.
All three logistics company types offer different things, so talk to consultants and do some research before choosing which type of logistics provider is the best for you.
2PL vs 3PL vs 4PL FAQs
What are the 3 Types of Logistics?
The three main types of logistics are:
- Inbound logistics, which involves moving goods from suppliers to producers. An example of this is sending car parts to car manufacturers.
- Outbound logistics, which involves moving finished products to customers. For instance, sending a handbag from the warehouse to the person who ordered it.
- Reverse logistics, which involves moving products from the customers back through the supply chain. This usually happens when the customer returns their product due to defects or other reasons.
What is the Difference Between 3PL and 4PL?
The main difference between 3PL and 4PL is its scope. 3PL companies take over your supply chain and logistics operations but don’t have the power to make decisions on their client’s behalf. Meanwhile, 4PL companies are more like partners in that they can negotiate with shipping carriers and influence production for the client’s benefit.
Is a Freight Forwarder a 2PL?
Freight forwarders are a 2PL because their main business activity is sending products from a company to the customer.
