Does your business need 3PL or 4PL and what is the difference?

Main Types Of Logistics Services

Let’s start at the start.

There are terms used to describe various logistics companies, services, or consultants which can be at times a little difficult to navigate. We want to take the confusion out of this all, and help you understand how important it is as a business to make the right choice when looking at a logistics service. Making the wrong choice can dramatically impact your business's bottom line and negatively impact your customer service levels — so you'll want to get it right.

There are 5 main types of logistics services, below is an overview of every type of logistics service:

A 1PL (first-party logistics) provider transports goods and products directly from one location to another.

A 2PL (second-party logistics) provider has ownership over the transportation means while distributing products for their customer.

A 3PL (third-party logistics) provider manages all aspects of fulfillment, from warehousing to shipping.

A 4PL (fourth-party logistics) provider manages a 3PL on behalf of the customer and other aspects of the supply chain.

A 5PL (fifth-party logistics) provider manages the entire supply chain network for a business, also known as the ‘logistics aggregator’.

The easiest way to understand the five different types of logistics services is to remember that as the number goes up, an additional party is added to the supply chain. The most common among the services are 3PL and 4PL, which is what we are going to discuss today.

What is 3PL - Third-Party Logistics?

Third Party Logistics (3PL) is an outsourced business, like Image International, that takes care of a company's supply chain and logistics operations. 3PL providers allow ecommerce merchants to accomplish more, with the tools and infrastructure to automate retail order fulfillment.

In simple terms, a 3PL will offer a variety of logistics services such as freight transportation, order fulfillment, and warehousing of product for companies who need to ship, store, and transport goods.

In other words, a 3PL acts as a middleman between your business and the carriers that deliver your products to customers. Most 3PLs manage or own their own facilities where the seller’s inventory is stored and fulfilled. At Image International Freight, we offer 3PL service and own and operate our own facilities, with our main distribution centre in Sydney Australia for Australian e-commerce businesses.

Benefits of 3PL

Lower cost of goods sold

- When you purchase products upfront, you will pay the wholesale price. The more you buy, the lower your costs and the higher your profit margins.

Greater flexibility in product sourcing

- When you use an eCommerce fulfillment business model, you can more easily source products from more than one manufacturer. All your items will be stored in the same warehouse, so orders that include products from multiple suppliers can ship in the same box. This saves on shipping costs.

More control over your logistics operations

- You get to choose an order fulfillment partner that provides the services your customers expect.

Faster order fulfillment

- You can pick a third-party logistics service with warehouse locations that will get your orders delivered quickly.

Easier returns processing

- The 3rd-party logistics warehouse that shipped your products can provide customer service and seamlessly process any returns. This improves customer satisfaction and lets you put products back into inventory quickly.

What is 4PL - Fourth-Party Logistics

Fourth Party Logistics is an operational model in which a business outsources its entire supply chain management and logistics of physical goods to one or several 3PLs.

4PL providers manage all aspects of the supply chain. Going beyond physical logistics, a 4PL may include elements of IT, procurement, and finance which offers more strategic insight and management over the enterprise's supply chain.

A 4PL or freight forwarding company can bundle your LCL shipments with those of other companies to save you money on shipping. The advantage of using a logistics services provider is that the 4PL aggregates a large volume of shipments, so the freight forwarder has an incentive to provide better service.

Benefits Of Forth-Party Logistics

Vendor Management

As a single point of contact, a 4PL acts as an intermediary between you and logistics providers. Therefore, you do not have to deal with the challenges that normally exist across managing multiple partners. The 4PL will coordinate the efforts of one or multiple 3PLs so it’s one less thing that you a seller has to worry about.

Solution-Oriented Approach

A 4PL is a neutral party who will design supply chain solutions with respect to your business requirements and not the available infrastructure associated with vendors. As a result, your supply chain will be tailored to your specific needs and industry requirements.

Single View

A 4PL will aggregate information from multiple 3PL providers and give you a single view of your metrics, inventory, order status, shipment status, billing, and EDI across the network. This level of visibility will allow you to get a better pulse of your supply chain and adjust quicker to market demands. In addition, this allows you to meet customer demand regardless of the status or location of the inventory.

3PL or 4PL, which is better for my business?

A 3PL provider will take care of your daily logistics needs but will leave the management to you. If fulfilling orders is getting in the way of growing your business and you have the labor resources and expertise to manage all your logistical operations, a 3PL might be a good fit for your business.

On the other hand, a 4PL provider can take full control of your logistics operations, taking on more comprehensive management and oversight of multiple logistics providers.

When e-commerce businesses outsource fulfillment to a 3PL, they work directly with their 3PL partner who manages the entire fulfillment process. Ecommerce businesses outsource fulfillment to a single 3PL partner so they can eliminate managing a warehouse and spend less time tracking inventory, packing boxes, and shipping orders.

But unlike a 3PL, a 4PL adds an additional degree of separation between the merchant and the 3PL as they manage the relationship with the 3PL instead.

A 3PL focuses on order fulfillment, which includes warehousing, picking and packing orders, and shipping packages. A 4PL takes it a step further by managing the entire supply chain, including fulfillment, transportation, and technology. While 3PL and 4PL offer distinct advantages, the choice of the logistics model you choose ultimately depends on what works best for your business growth needs.

In conclusion, there are specific advantages of using a 3PL or a 4PL logistics company. However, the type of service and company you choose is largely determined by your existing business model, company size, budget, and infrastructure. Ultimately, the choice of logistics model depends on what works best for your own business. Call us today on +61 2 9773 1378 to discuss your current arrangements and whether Image International Freight is a good fit for your business's 3PL or 4PL needs in Australia. Your cargo is our image.