The Differences Between Third Party and Fourth Party Logistics
The differences between third and fourth party logistics has been a
talking point within the warehouse logistics sector for some time. While some might have a very clear outlook as to what the main differences are, others may be more hazy on the subject. To understand what the differences are between the two, it is advisable to understand what each service offers.
Third Party Logistics
Third party logistics is when a company outsources it’s section of logistics operation to a specialist company. Examples of third party logistics providers would be those that offer warehousing and distribution, tracking and tracing and specific packaging. Third party logistics often target a specific function and also have operations in cross-docking, warehousing and freight forwarding. Third party logistics may also be known as 3PL. The term 3Pl was introduced in the 1970s to distinguish companies that offered contracts for transportation.
While there is a basic outline as to what classes a provider as a 3PL, it’s worth noting that not all 3PLs will supply the same service as each other, and will all provide a service tailored to their business model. Take a look at our post on ‘How to choose a 3PL’.
Fourth Party Logistics
Where third party logistic companies would provide certain aspects of logistics, companies that offer fourth party logistics would take on the responsibility of a company’s whole logistics operation. This could be via an independent company, or a company set up under the same umbrella, but is classed as a separate company that deals exclusively with the logistics side of the business. In this regard, it is also possible for a third party logistics company to form a fourth party logistics agreement with a company.
Forth party logistics are also known as 4PLs, a term that was first introduced in 1996, albeit with a slightly different definition. Accenture described 4PLs as a supply chain integrator that uses its own resources to offer a supply chain solution, but this term is no longer registered. 4PLs are also known as “Lead Logistics Providers” and it’s not unusual to see 4PLs who also operate as transportation companies. A 4PL would be a service provider that doesn’t own any assets, but will manage the entire logistics for a company.
Those within the logistics sector also see 4PLs as independent, with no assets or employment affiliation with the company they are providing logistics services for. Some also see 4PLS as being more focused on strategic approaches in the way it operates.
As you can see, in today’s evolving world, it can be somewhat difficult to determine if a company is a 3PL or 4PL, or indeed both. People will also perceive companies as 3PL or 4PL depending on the services they offer and the approaches they take within their business model. The most straightforward way to determine if a company is 3PL or 4PL, is whether that particular company uses its own resources and technology to run a supply chain for its customers, if it does, then it would be classed as 4PL, whereas 3PLs would provide services for some or all of a customer’s logistics requirements.