In this article, we will go into detail about the differences between 1PL, 2PL, 3PL, 4PL and 5PL in Logistics.
1PL: 1st Party Logistics
First-party logistics service provider is a firm or an individual that needs to have cargo, freight, goods, products or merchandise transported from point A to point B. The term first-party logistics provider stands both for the cargo sender and for the cargo receiver. A 1PL can be companies considered as self-logistics like manufacturer, trader, importer/exporter, wholesaler, retailer or distributor in the international commerce field. It can also be institution such a government department or an individual or family removing from one place to another. Anyone having goods moved from their place of origin to their new place is considered to be first-party logistics provider.
2PL: 2nd Party Logistics
Second-party logistics involves the transport of goods from a particular transport area of the supply chain like rail, road, sea or air. Second-party logistics providers are the asset-based carriers and includes transport using ships of own lease and airlines that they are contracted with. They are mainly used for international transportation of heavy and wholesale goods and for trading purpose as well. For example, 2PL can be freight forwarders, freight brokers, customs brokers, export management companies, exporting trading companies, shipping associations, shipper’s agents, export packing companies, etc.
2PL is the actual carrier, such as shipping lines, airlines, car carriers. Therefore 2PL service providers often own and use specialized means of transport to cater to their specific transport work, take on the role of transport of a particular stage or provide a single shipping service in the logistics chain of a client company. For example, the major shipping companies in the world such as Wan Hai, Maersk, Yang Ming and EverGreen are big corporations specializing in shipping goods by ships. They can be considered 2PLs which only handles the transport role of a particular stage or provides single transport services in the entire logistics chain of a customer company.
3PL: 3rd Party Logistics
Third-party logistics service providers are broadly referred to as external suppliers who perform part of or all logistics functions that are not performed by in-house logistics professionals.
When 3PLs began to gain popularity in the 1970s, their functions centered on operation, warehousing, and transportation services. By the late 2000s, they included with their warehouse and transportation services activities such as production or procurement of goods, order fulfillment, labeling, packaging, assembling, kitting, reverse logistics, information technology services, customs brokering, cross-docking, and forwarding.
Compare to others, 3PLs have some certain advantages:
Use of logistics experts rather than in-house staff
Easier adaptation to technology advances
Flexibility of location, offerings, resources, and workforce
Quicker to add capabilities
By using 3PL service providers, companies could potentially lose out on
Control over transportation logistics
Development of cheaper and more efficient pricing models
3PL service providers are commonly segregated into one of five categories: transportation, warehouse/distribution, forwarder, financial, or information technology.
Transportation: Most transportation-based 3PLs are subsidiaries of larger organizations, such as FedEx Supply Chain Services or UPS Supply Chain Solutions.
Warehouse/distribution: Likely the first of the 3PL service providers, these facility-based operations have transitioned into integrated logistics and have significant experience in logistics management. Organizations in this category include IBM Supply Chain Management, Ozburn-Hessey Logistics, and Intral Corporation.
Forwarder: These 3PL service providers have expanded their middleman roles as forwarders into a broader range of 3PL services.
Financial: These 3PL service providers offer freight payment, auditing, cost accounting and control, and logistics management tools. Financial-based 3PLs include GE Information Services, AIMS Logistics, and Cass Information Systems.
Information Technology: The newest and a growing type of 3PL service providers, IT 3PLs represent transportation and logistics services for internet-based, business-to-business, and electronic markets.
For example: DHL and FedEx are the leading companies in providing global logistics services, including services from shipping by air to air, planning and optimization of transportation networks, agent management, security system management, Incoterm, cargo insurance, etc.
4PL: 4th Party Logistics
Fourth-party logistics service providers emerged in the mid-1990s as companies with the primary purpose of ensuring that all elements of the supply chain, are working toward the same, relevant supply chain goals and objectives. A fourth-party provider is a non-asset-owning company that works with multiple resources, including 3PLs, to manage planning and technology for a client’s logistics system. The 4PL is a logistics management service, acting as a coordinator for these different services, including the design, build, and execution of supply chain solutions.
Fourth-party logistics differs from third-party logistics in the following ways:
The 4PL organization is often a separate entity formed by a joint venture or other long-term contract between a client and one or more partners
The 4PL organization is an interface between the client and multiple logistics services providers
Ideally, all aspects of the client’s supply chain are managed by the 4PL organization
It is possible for a major 3PL organization to form a 4PL organization within its existing structure
The 4PL’s goal is to provide value across an entire supply chain, not just one segment of the chain. 4PL’s services are determined by customer needs. A successful 4PL, service provider requires a strong strategy, composed of:
Leadership: The 4PL manages the project, including services, systems, and information.
Management: The 4PL manages the multiple 3PLs as well as day-to-day operations
Information Technology: The 4PL manages the full integration and support of all the systems within the supply chain.
Assets: The 4PL manages transportation, warehouses, contract manufacturing, packing, and procurement services.
For example, some companies are currently providing 4PL services such as UPS, XPO Logistics, and Geodis Wilson company. In 4PL, the company or representative organization will be authorized by the customer as a manager, focusing on improving process efficiency and implementing the entire supply chain and logistics. Therefore, 4PL is increasingly becoming one of the key positions in the business activities of the business.
5PL: 5th Party Logistics
Fifth-party logistics service provider is also known as a logistics aggregator. They will aggregate the demands of the 3PL and others into bulk volume for getting better rates with different types of airlines and shipping companies. This type of logistics is not asset based. It usually works seamlessly across all disciplines.
In recent years, 5PL is considered as the most popular and developed logistics service for e-commerce today. 5PL manages and coordinates the activities of 3PLs and 4PLs through information solutions related to supply and demand in e-commerce delivery market. The characteristics of 5PL are the systems (Order Management System (OMS), Warehouse Management System (WMS) and Transport Management System (TMS) These three systems are closely related together in a unified system and information technology.
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1PLs are businesses that invest in their own means of transportation, support tools and available resources, human resources to organize and carry out logistics activities to meet their needs. 2PL focuses on providing single services, contributing to a small aspect of the customer's supply chain. Usually 2PLs are sea, land or air carriers. Regarding 3PL and 4PL, in general, both activities are involved in the supply chain activities from input materials to output products, transporting to the recipient, while the most outstanding example of 5PL focuses on E-logistics, Logistics based on e-commerce.