In 2020, the COVID pandemic laid bare all of the bottleneck points in the global logistics chain. The first few months were the most chaotic, with vegetables rotting and unpicked in fields because no one was available to ship them to market. Meanwhile, thousands of ships found themselves anchored outside of ports for months because there weren’t enough dockworkers to unload the ships. This was further complicated by entry restrictions due to closed and quarantined borders.
The amount of learning and adapting done by those who worked in logistics during that time was herculean. One area of logistics, however, stood out as particularly competent at sorting the massive mess: 4PL providers.
What Is 3PL?
Also known as ‘third-party logistics,’ 3PL includes every truck, plane, train, ship, and shipping storage warehouse that is loaded with cargo. It also includes the employees and companies that oversee this cargo.
If you need to get cargo from point A to point B, with perhaps a layover at Point C, you call a third-party logistics supplier. They will pick up the cargo or you will drop it off, and it will be on its way to its destination.
What Is 4PL?
Fourth-party logistics suppliers (4PL) companies don’t actually move items themselves. They’ve never lifted a box, never packed an eighteen-wheeler, and never loaded a cargo container to be shipped across the ocean. So, what do they do, exactly?
The Big Picture
Imagine if, rather than having your business’ shipping department choose which shipping method was cheapest and most efficient, you could outsource your entire logistics department to another company.
Fourth-party logistics suppliers provide a single point of contact, managing logistics from point A to point B through all third-party suppliers. Because 4PL has a top-down view of the entire shipping and receiving industry, they have unique insights that may not be immediately apparent to those using a single 3PL supplier.
Strategic Planning and Optimization
The benefits of fourth-party logistics are precisely these unique insights. For example, the 4PL supplier may know that a particular company has had an issue at one of their distribution hubs. Due to an issue with that one supplier’s system, all packages have been slowed down.
Meanwhile, your business needs to move products, regardless of bottlenecks–this is where 4PL providers shine. Recognizing this pending disaster, they can neatly reroute all shipments either around the bottleneck or through another 3PL until the original supplier has sorted out the mess and can continue timely operations.
Had your business stayed with that contracted 3PL, your customers may have had to wait weeks for their products, leading to lost sales and clients. With their enhanced insights, 4PL suppliers can move swiftly to adapt to any situation and ensure timely deliveries.
Fourth-party logistics suppliers also excel in other links in the supply chain. Sometimes, shipments need to wait at warehouses while other parts are assembled, and 4PL shines here, too. These suppliers understand exactly which warehouses are the most strategically located to ensure the efficient and low-cost continuation of one part of the supply chain while another catches up.
Differences Between 3PL and 4PL
The primary difference between 3PL and 4PL is that third-party suppliers can be thought of as the orchestra, while fourth-party providers are the conductor.
- Receives an order, picks up the product, and takes it where it needs to go
- Has limited visibility with regard to what other 3PL suppliers are doing
- Makes it difficult to reroute packages to other companies when slow-downs occur
- Makes a guarantee to deliver the product, but has trouble guaranteeing delivery times or prices
- Does not ship items directly, but manages and oversees the shipping process from door to door
- Has a full view of national and worldwide logistics chains
- Understands fluctuating shipping rates, and is able to choose the lowest cost option while ensuring goods are delivered on time
- Acts as a single point of contact between the client and 3PL companies
Covid made many aspects of the supply chain more complicated, but shipping and supply chain complexities will never go away. Third-party and fourth-party logistics providers are two of the key players in these worlds, and knowing what each excels at is necessary to stay in the game!