The logistics world has its own language, and can easily confuse the casual observer. Today we will discuss just two terms: 3PL and 4PL. Logistics practitioners can get caught up in all these terms, throwing them around expecting everyone to understand. Star Wars has its own strange combinations of letters and numbers: IE. C3PO and R2D2. Is there a C4PO, not unless you are talking about a type of beer? The big difference between logistics and Star Wars is that is no movie “Logistics – the BCO Strikes Back” to watch over and over again to help make sense of these terms.
What is the difference between a 3PL and a 4pL? Let’s start with the full terminology: “Third party logistics” and “Fourth party logistics”. The natural question that comes from this: “Is there a 1PL and a 2PL? Well – kinda. 1PL and 2Pl are not common terms, but can help us understand the basic concept. Warehouse Anywhere offers us a graph for a pictorial of the difference:
An even simpler set of definitions:
- 1PL – Farmer owns his own truck: 1 party.
- 2PL – Farmer contracts with a trucker: 2 parties
- 3PL – Farmer contracts with a company who contracts with multiple truckers, and selects the right trucker for each move: 3 Parties.
- 4PL – Farmer has multiple trucking companies and warehouses, hires 1 organization to manage them all – 4PL.
- 5PL – Farmer has multiple businesses, and hires a company to manage the entire business: 5PL.
- Very few manufacturers own their own trucks anymore – Manufacturers contract out to trucking or logistics companies with enough scale to manage the legal complexities and diffuse the fixed and administrative costs or a truck fleet.
- Many manufacturers will contract with truckers directly. Many trucking companies have a brokerage license, and accept a load from a manufacturer and have another trucking company move the goods. – this is where all the confusion starts.
- It can be in the logistics company’s best interest to have terms that are confusing to the manufacture, so there is limited effort, by some players, to clearly delineate the differences.
So – is a freight broker a 3PL? There are 3 parties involved, so yes, they are a type of 3PL. But as George Abernathy points out, if the work being performed is for the movement of a single load, there is limited strategic value being brought to the manufacturer, making the term 3PL a bit tenuous in this case. But ‘strategic value’ is in the eye of the beholder, so who is the ultimate judge? And frankly, who cares if the technical definition is broker or 3PL?
A 4PL example: You can imagine that there are manufacturers who struggle to find the right talent to staff their logistics department. In this case, they might hire a 4PL to manage the various type of contracts and service providers – forwarders, truckers, warehouse operators etc. The 4PL would be responsible for managing all of those relationships.
So another way to think about the definitions is this:
- 1PL – Farmer owns his own truck: 1 party, no outsourcing.
- 2PL – Farmer outsources the trucking: 2 parties.
- 3PL – Farmer outsources the planning of the truck routes and the trucking: 3 parties.
- 4PL – Farmer outsources his logistics department – planning, trucking, freight pay etc: 4 or more parties.
- 5PL – Farmer has multiple businesses, and hires a company to manage one business so he can focus on another business.
So, is 3PL the same as 4PL – no, but they are related. Is C4PO related to C3PO – maybe, watch “Logistics – the BCO Strikes Back” to find out!
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