When a company that does a lot of shipping reaches a certain size, they start looking for better logistical solutions. Shipping is extremely expensive – and becoming more expensive due to a variety of factors. For many companies, this can create a profit ceiling that can only be broken by embracing new shipping and logistics strategies.
For many companies, the best option is to partner with a company providing 3PL and 4PL solutions. An outside company that specializes in shipping can offer numerous benefits and cost savings that easily justify their fees. They have tools and techniques which otherwise aren’t available to all but the largest of mega-corporations. This helps level the playing field and allows smaller businesses to compete against the huge players in their industry.
So in this article, we’ll break down the 3PL and 4PL options available to you, and explain which may be most beneficial for your own situation.
I. What Are All These PLs?
Originally, “3PL” stood for Third Party Logistics. However, over time the terminology has shifted somewhat so that the original acronym is no longer entirely relevant. Here’s a quick breakdown:
1PL: A producer does all the work themselves, including shipping products to customers with their vehicles, such as a small farmer driving their own goods to a local market.
2PL: A producer does most of the work, but hires an outside shipping company – like UPS – to handle shipments. Most established small businesses are 2PL.
3PL: A third party company arranges for shipments of goods on behalf of the producer, but otherwise isn’t involved in production.
4PL: A third party also takes over the management of aspects such as warehousing and end-to-end shipment tracking.
And now there are 5PL providers, in which the third party takes over management of all stages in the process, including production, leaving the original company in more of an oversight role.
This can also be seen as a progressive sign of a business’s success, as higher levels of third-party involvement typically go along with ever-growing shipments and revenues.
However, for most growing businesses, it’s about making that jump from 2PL to either 3PL or 4PL services, so that’s what we’ll focus on.
II. 3PL vs 4PL Services
When it comes down to deciding between 3PL and 4PL services, there are two basic issues at play: how much you’re spending for your external logistics, and how much control you retain or give up in the process.
When Companies Choose 3PL Solutions
For many companies, especially those first crossing over into medium-sized status, 3PL offers a good balance between costs and control. Again, 3PL means that you are still in control of all aspects of production and management except the specifics of shipping and fulfillment.
With a 3PL provider, you:
- Still manage your own supply chains, including reverse logistics.
- Typically gain access to a network of warehouses and more options in shipping types.
- See lowered costs on shipments, because the 3PL can leverage economies-of-scale and get bulk shipping rates a single company can’t qualify for.
- Enjoy the benefits of shipping decentralization.
- Have more flexibility and freedom to adjust your logistics model on-the-fly, to respond to changing conditions.
Plus, 3PL services are significantly less expensive than 4PL solutions, which makes them more affordable for small-to-medium-sized companies.
When Companies Choose 4PL Solutions
Partnering with a 4PL solutions company means giving them significantly more control over your logistics. On one hand, a good provider will have even more opportunities to find cost savings and optimization, but it does involve giving up a lot of control over your processes. The costs are substantially higher than a 3PL as well.
However, partnering with a 4PL provider brings:
- Better optimization across every aspect of shipping and logistics.
- Direct warehouse management (usually) and further optimizations to the labor side.
- A single point of contact for all logistical matters.
- Freedom to focus on your core business, without spending valuable labor time on shipping and logistics.
- Better data tracking and management, including information that can be made available to customers for better CX.
- More predictable costs on shipping and logistics due to centralized management.
- Better integration of your offline and online presence, such as aggregating data on retail shipments vs online orders for further optimization.
4PL providers can also take over management of other 3PLs, if you have established partners, or they can offer combined 3PL/4PL services as needed. In many cases, a logistics company may offer both service types, and allow growing companies to ‘graduate’ from 3PL to 4PL without changing partners.
Typically, medium-to-large-sized companies will be most interested in 4PL companies. At that level, their shipping operations are typically large and burdensome. Rather than attempting to fully overhaul their own internal processes, handing off responsibility to a 4PL is often faster, easier, and cheaper.
5PL services, meanwhile, are typically only employed by extremely large companies, or by ‘umbrella’ corporations that oversee multiple operations. As 5PL services become more common, 3/4PL companies will likely expand their service offerings to make clear paths towards 5PL service.
US Logistics Can Optimize Your Shipping Processes
Regardless of your current size, US Logistics can offer shipping and logistics services that fit your budget while improving costs and optimization. For over thirty years, we’ve been growing as a trusted partner for an ever-expanding list of businesses across central and southeast America. We’re constantly adding new service offerings, and looking for ways we can encourage our clients to grow and expand, even as we continue to simplify their logistical burden.
Whether you’re a small company getting swamped by the hassle of managing shipments directly, or you’re a larger operation that feels like your shipping optimization has plateaued, we can help! Contact US Logistics to discuss your situation.