Learning to differentiate between a third party logistics (3PL) and fourth party logistics (4PL) can get pretty confusing and is already a highly debated topic among those in the supply chain industry. From trying to define each and which would be best, this has been an on-going subject that is yet to be fully and distinctively defined.

Before looking into the differences between 4PL and 3PL, we need to understand the other PL terminology too. A first-party logistics provider is a firm or an individual that needs to have cargo, freight, goods, produce or merchandise transported from one place to another. This certain provider stands for both the cargo and for the cargo receiver. Any party having goods moved from their place of origin to their new place is considered to be first-party logistics provider.

A second-party logistics provider then is an asset-based carrier that actually owns the means of transportation. Typical 2PLs would often be shipping lines which own, lease or charter their ships. Airlines too that own, lease or charter their planes along with companies that do the same fall under this category.

What is 3PL?

This is when you outsource all or much of a company’s logistics operations to a specialized company. “3PL” was a term first used in the early 1970s in order to identify intermodal marketing companies in transportation contracts. Contracts for transportation at that point only had two parties – the shipper and the carrier. IMCs then became a third party in the contract when they got involved to act as intermediaries that accepted shipments from the shippers and tendered them to the rail carriers. Services that 3PL companies offer these days are bundled together and include 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; and other companies integrating and offering subcontracted logistics and transportation services.

And what is 4PL?

With 4PL logistics, the organization is often a separate entity established as a joint venture or long-term contract between primary client and one or more partners. Secondly, a 4PL organization presents itself as a single interface between the client and multiple logistics service providers. Fourth party logistics provider also manages all aspects of the client’s supply chain.

4PL was originally 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.

3PL vs. 4PL

An image of 3pl vs. 4pl comparison

Source: OSP Labs

Now that you’ve read that and understand the difference between 3PL and 4PL, find out Why The Future Requires 3PL Providers!