What is a 3PL? What is a 4PL? 1PL? 2PL?...5PL??

In today’s logistics world, there are many different types of logistics providers. You may have heard of the term 3PL, or Third party Logistics Provider, but have you heard of 4PL, or 1PL, or 2PL, or how about a 5PL?

Below are working definitions of the various PL’s.

1PL- First Party Logistics Provider

The 1PL is referring to the Beneficial Cargo Owner (BCO), the BCO is the manufacturer or it could also be the consignee. An example of a 1PL might be a bakery that produces bread and delivers the bread to the end customer using their own trucks. Another example might be a lumber yard that uses it’s trucks to pick up wood from the mill. 1PL’s would typically not have their equipment or trailers out for hire, if they did, they would be operating as a 2PL not a 1PL.

2PL- Second Party Logistics Provider

Carriers or 2PLs would encompass all asset based companies that own trucks, steamship lines, airlines, or even rail road companies. These are the companies with the physical equipment to actually move the freight. In the early days of transportation, this was the only types of companies that you could hire to move product. Shippers were required to book directly with the actual carriers. Eventually other intermediary types of companies developed offering a larger spectrum of services to assist shippers in their dealings with carriers, international ports, as well as foreign customs agents. (Rushton, Croucher, & Baker, 2010)

3PL- Third Party Logistics Provider

The 3PL model became more popular in the in the 1980’s, acting as an intermediary partner between the carriers and the shippers, taking the role of finding carriers for the shipper (Alagheband, 2011) 3PL providers offer value to the customer by working with the carriers directly to take advantage of greater buying power given the volume of shipments that 3PL providers handle. On international shipments, 3PLs will also be involved with paying all of the other government agencies (export/import customs clearance) as well as the other relevant port charges, terminal fees, duties, taxes, and any other charges that would otherwise have to be paid by the shipper or consignee. The management of these functions creates value to the customer. If the customer books directly with a carrier, often times they must end up interacting with many different port and government entities along the way, making the process more tedious. If a shipper arranges to transport a truckload of product with a 3PL, that shipper contacts the 3PL, and then the 3PL finds the carrier that can handle the shipment and makes all of the necessary arrangements. For ease of transaction, many companies choose to use 3PL services to interact with the multiple entities involved with the shipment on their behalf. (Rushton, Croucher, & Baker, 2010) 3PL’s can also leverage greater buying power and have more trucking resources.

It should be noted that many 3PL’s also have their own equipment, making them 2PL’s as well as 3PL’s. Sometimes you book a 3PL and it the freight is picked and moved using their equipment. The large small package consolidators operate as 3PL’s as well as 2PL’s, they run many of their own aircraft, but they also outsource many other functions to various 2PLs. Know what you are getting at the end of the day!

4PL- Fourth Party Logistics

The 4PL model evolved and was originally trademarked by Accenture. (Yao, 2010) The 4PL model is supposed to be a completely outsourced logistical operations team which would manage the supply chain for an organization from start to finish. The 4PL essentially manages the relationships and contracts with 2PLs and 3PLs in order to offer greater expertise for the shipper. The ideal 4PL structure originally was completely independent of 2PL or 3PL parent companies, but over time, many 3PLs have created their own 4PL divisions, calling them lead logistics providers, or other similar names. (O’Reilly, 2011) This has been a contributing factor leading to confusion in the industry, and distrust of the 4PL. The 4PLs independence (or lack of) from their 3PL parent companies could be a significant factor in a defining definition of a 4PL.

5PL- Fifth Party Logistics

To add to the confusion, the 5PL model has emerged as a concept for Supply Chain Management. The 5PL focuses on IT solutions, EDI, Software Systems, or other electronic means in which to make supply chain decisions. Imagine a computer program that automatically routes, dispatches, and tracks shipments based on inputted data. Some might say that the emergence of a 5PL model leans evidence to the notion that the 4PL model is strictly a marketing ploy, trying to attract attention by simply increasing numbers to draw attention to a new concept. Will there soon be a 6PL or 7PL service offered?