From First-Party Logistics (1PL) to Fifth-Party Logistics (5PL): What works best for your business?
Are you facing logistics or transport challenges? Do you run a business where the punctual dispatch of the goods is one of the important success factors? Then you are in need of a professional logistics service provider. But which is best suited for your needs? Let us help you make an informed decision and give you some basic definitions of 1PL to 5PL logistics. Knowing the differences may help you decide which fits your individual requirements.
Logistics services have become key factors in the development and growth of entire industries and business segments such as international trade, e-commerce or fulfilment services. In the process, they have gained complexity. For customers looking for a suitable logistics service provider, it is important to find the right partners with the right service portfolio. One of the most important factors is whether the service provider is a 1PL, or a 2PL up to a 5PL. The differences between them are important, since each logistics or transport company can help you master your logistics challenges differently. We explain the basic differences for you.
1PL: First-Party Logistics
A business that sends goods or products from one location to another is a 1PL. For example, a supplier that transports food directly to a grocery store for sale. Here, only two parties are involved: the company that ships the goods and the other that receives them. An important benefit of a 1PL logistics system is its simplicity, however it may also limit your further development. In order to realize more growth, it can be helpful to turn to a specialized service provider who takes over the logistic tasks. This helps you to better concentrate on your core business.
2PL: Second-Party Logistics
This leads us directly to 2PLs, logistics service providers specialized in taking over the classic logistics services of transport, cargo handling and warehousing. They have their own assets such as vehicles and/or warehouses and originated around the 1980s during the increasing internationalization of logistics. Here, the degree of complexity is already higher, but may nevertheless not be suitable to answer your more demanding logistics needs. Think about e-commerce and the role the many added services logistics can offer such as packaging or returns management. Here, your choice should be a 3PL or even a 4PL service provider.
3PL: Third-Party Logistics
3PL logistics companies expand their service portfolio beyond 2PLs and act as system service providers. They organize the full flow of goods and information, take over all logistics processes, and offer customized value-added services. These fulfilment services include customs, financial and information services, accounts receivable management, labelling, packaging, and even product refinement. With their complex portfolio they can take on a whole range of more advanced tasks that companies can use to drive their business forward, win new customers and achieve further growth.
However, you do not relinquish the strategic sovereignty of your logistics and/or supply chain activities. For support in the fundamental alignment of supply chains, 4Pl companies would then be the right contacts.
4PL: Fourth-Party Logistics
In a 4PL model, a company outsources essentially all its logistics activities, including logistics management as well as the execution of all logistics services throughout the supply chain. The 4PL service provider networks all participants in the supply chain, controls all processes and keeps an eye on the most efficient use of all resources. The service provider itself has no assets in the form of a fleet of vehicles nor warehouses, but commissions 3PL providers for third-party transportation. The 4PL logistics service provider therefore typically provides better strategic insight and management of the company’s supply chain.
5PL: Fifth-Party Logistics
It is debatable whether there really are 5PL logistics service providers or whether they are merely 4PLs with more advanced online services. Therefore, there is currently no accepted definition. The basic idea, however, is that 5PL emerges when different supply chains become a cohesive supply network. 5PL logistics service providers improve and optimize the efficiency of the individual parts of the supply network.
How Coyote Logistics can help
As a leading global logistics service provider, we at Coyote Logistics balance innovative technology and industry expertise. We connect shippers and carriers worldwide and create added value for both. The European service portfolio includes 4PL services, helping our customers to successfully master their transport, shipping and logistics challenges. This includes many industries such as e-commerce logistics, automotive of metal and steel.