There are two types of businesses: First, businesses that offer online and offline services. Second, businesses that sell, distribute, or manufacture products. Virtually all businesses in the latter category need their products to be supplied from one point to another, usually from the point of origin to the point of consumption.
Companies often partner with logistics providers to ensure that their goods are supplied smoothly. These logistics partners can be classified into five categories, each offering varying degrees of support in the supply chain. These categories are referred to as 1PL, 2PL, 3PL, 4PL, and 5PL.
Stay with us, as in the next 5 minutes, you will have a clear understanding of different types of logistics providers and what the differences are between each of them.
An Overview of 1PL, 2PL, 3PL, 4PL, and 5PL
1PL: First-Party Logistics
1PL, or first-party logistics, is a company that handles its logistics operations in-house. Whether it is sourcing raw materials or delivering finished products to customers, the company manages everything itself.
1PL is typically used by small businesses or startups with limited operations and can manage their logistics needs independently. But larger organizations may also utilize 1PL for certain operations, such as managing their own warehouses or transportation fleets.
Examples of 1PL include manufacturers, wholesalers, and retailers who handle their own logistics processes. For example, a clothing manufacturer may source fabrics, produce clothing, store inventory, and ship orders to customers all within their own facilities, without outsourcing any of these processes to a third party. A real-life example of a 1PL provider is Amazon. Amazon owns its own warehouses and transportation fleet and is responsible for delivering its products to customers.
2PL: Second-Party Logistics
2PL, or second-party logistics, is a logistics provider company that usually provides transportation services to its partnering companies. It could be a company that owns or manages airlines, trucks, and ships. They do not own the goods; their only responsibility is to ship the products from one point to another point.
A real-life example of a 2PL provider is UPS. Many businesses find 2PL a suitable alternative to 1PL, as they want to keep their focus on more important operations inside the company. Most often, the services of 2PL companies are solicited by medium-scale retailers who cannot afford to dedicate a whole department to managing their logistics internally. Examples of other businesses include manufacturers, e-commerce companies, importers, and healthcare companies.
3PL: Third-Party Logistics
Some businesses have more complex logistical needs, which cannot be managed internally or by 2PL partners. These businesses outsource their operations to 3PL companies. Third-party logistics (3PL) provides full-service end-to-end logistics solutions—from transportation and warehousing to inventory management, order fulfillment, and distribution.
A 3PL service provider may also utilize technology solutions, such as transportation management systems (TMS) and warehouse management systems (WMS), to improve their logistics processes and efficiency. For its wide-ranging and complete set of services, 3PL is one of the most preferred business models, employed by more than 86% of Fortune 500 companies.
Some examples of 3PL providers include global logistics companies, such as DHL, FedEx, and UPS. But other companies offer specialized logistics that focus on specific industries, such as healthcare or automotive logistics.
4PL: Fourth-Party Logistics
4PL in logistics services is a relatively new concept. The term refers to companies that provide comprehensive and integrated logistics solutions—they are responsible for the entire logistics process, from planning to execution.
4PL providers usually work closely with their partners to understand their logistics needs and objectives. They then design and implement a customized logistics solution that leverages a network of logistics providers to optimize processes, reduce costs, and improve supply chain visibility. One of the advantages of partnering with a 4PL provider is that it acts as an integrator, offering a single point of contact for all logistics activities, thereby simplifying logistics management for businesses and providing a holistic view of the supply chain
A real-life example of a 4PL provider is IBM. IBM provides a comprehensive logistics solution to a variety of companies, including Walmart. Other examples include Accenture, DHL Supply Group, etc.
5PL: Fifth-Party Logistics
5PL is the latest and emerging concept in the logistics industry. A 5PL provider is a company that provides a strategic logistics solution to commercial entities, including all the benefits offered by 4PL but other services, such as consulting as well. They act as an integrator and have expertise in engineering and cutting-edge innovative flow automation systems, using advanced technology, such as artificial intelligence (AI), big data analytics, and the Internet of Things (IoT), for creating a fully autonomous, self-optimizing supply chain
A real-life example of a 5PL provider is Warespace. We have made it our mission to simplify the complex logistics process into a unified platform, making it easier for our partners to dedicate their resources to their core operations. This is testified by our commitment to innovation, especially our decentralized storage solutions and aWARE system.
Our decentralized storage services allow businesses to store their inventory in multiple warehouses across Germany rather than relying on a single central warehouse. And with our aWARE system, you can easily manage your inventory across all of our 120 storage locations with a single dashboard, giving you a holistic view of your supply chain.