When you’re ready to outsource logistics, you’ll likely come across the terms 3PL (third-party logistics) and 4PL (fourth-party logistics). While they sound similar, they offer different levels of service and involvement.
In this article, we will explain each of these and what each one does, as well as how to decide which is right for your business.
What is 3PL
Third-party logistics, or simply 3PL, involves outsourcing supply chain and logistics functions to an external service provider.
The job of 3PL providers is to manage and execute key parts of a company’s supply chain. Their primary role is to streamline logistics operations, allowing businesses to focus on growth rather than fulfillment.
These providers specialize in managing key operations, including warehousing, transportation, order fulfillment, and distribution, for other businesses.
Partnering with 3PL logistics is ideal for E-commerce businesses, startups, and growing brands that need a partner to manage fulfillment efficiently and cost-effectively.
Warehousing and inventory management
Warehousing means storing inventory securely in strategically located fulfillment centers. They also deal with inventory management, which means they track stock levels in real time and sync with e-commerce platforms.
Order fulfillment, transportation, shipping, and returns
Another one of their jobs is order fulfillment. They pick, pack, and ship orders quickly and accurately to customers.
Once the orders are packed, they manage transportation and shipping, as well. They handle shipping arrangements with carriers and optimize delivery methods and costs.
3PLs also deal with returns. They process customer returns and restock or dispose of items as needed.
Custom packing and freight, and customs
In most cases, 3PL providers also do custom packaging and kitting. Some 3PLs offer value-added services like bundling products, branded packaging, or subscription box prep.
And finally, some 3PLs assist with freight forwarding and international shipping compliance.
What is 4PL
Fourth-party logistics or 4PL is a logistics model where a company outsources the entire management of its supply chain to a single external provider.
Unlike 3PLs, which handle execution (like warehousing and shipping), a 4PL oversees the entire logistics ecosystem—including multiple 3PLs, carriers, and suppliers.
4PLs are ideal for large companies with complex or global supply chains. Also, for businesses that need full logistics outsourcing and optimization. And organizations that want to reduce internal overhead and improve agility.
Some of the key functions of 4PL include strategic supply chain management, vendor coordination, technology integration, performance monitoring, and a single point of contact.
Strategic supply chain management and vendor coordination
The job of 4PL providers is to design and optimize the full logistics network for efficiency and scalability. Additionally, they are also in charge of managing multiple 3PLs, freight companies, and warehousing partners on your behalf.
Technology integration and performance monitoring
4PLs are responsible for providing centralized systems and data dashboards to track performance across your whole supply chain. On top of that, they should analyze data, negotiate contracts, and ensure all logistics partners meet service levels.
Single point of contact
Most 4PL providers act as the main logistics liaison, so your business doesn’t need to coordinate with multiple providers.
Key differences between 3PL and 4PL
While both 3PL and 4PL help businesses manage supply chains, they serve different roles and levels of control. Here’s how they compare.
1. Role and scope
3PLs focus on the execution of logistics tasks such as warehousing, transportation, order fulfillment, and returns management. 3PL providers typically own or operate physical assets like warehouses and fleets, and their role is to streamline the movement and storage of goods within the supply chain.
4PLs, on the other hand, act as strategic orchestrators, managing the entire supply chain on behalf of the client. 4PLs do not own physical assets but coordinate multiple 3PLs and other providers, integrate advanced technology, and provide end-to-end visibility and optimization of the supply chain.
2. Control and strategy
When you partner up with a 3PL company, you retain more direct control over logistics decisions and processes. 3PLs are transactional partners, executing specific logistics functions as directed by your business.
The 4PL takes over strategic oversight and decision-making, serving as a single point of contact for all logistics operations. They are responsible for integrating, optimizing, and continuously improving the entire supply chain, often leveraging data analytics and technology.
3. Asset ownership
3PL companies can own or operate warehouses, trucks, and distribution centers. While 4PLs don’t typically own assets, and instead manage relationships and performance across multiple logistics providers.
4. Technology and data
3PL providers offer tools for order tracking, inventory, and shipping. And 4PLs provide centralized systems for supply chain visibility, analytics, and performance tracking across all logistics partners.
5. Cost and flexibility
3PLs are generally more cost-effective for straightforward logistics needs. You pay only for the services you use, making it budget-friendly for daily operations and smaller businesses.
Hiring a 4PL company involves a higher upfront investment but can deliver long-term savings by reducing inefficiencies and optimizing the supply chain at a strategic level. 4PL is best suited for businesses seeking a hands-off, fully optimized logistics model.
Which do you need?
As you’ve noticed, both 3PL and 4PL have numerous advantages. However, they are not suited for every type of business.
3PL providers are great for small or medium-sized businesses with relatively simple logistics needs.
You should choose the 3PL model if you want to maintain control over your logistics operations but need expert support for warehousing, shipping, and fulfillment.
Also, opt for 3PL if you need a flexible, cost-effective solution that can scale with your business growth.
On the other hand, you should choose 4PL if your business is large, rapidly growing, or has a complex, multi-vendor, or global supply chain.
4PLs are ideal if you want a single point of contact to manage all logistics providers and optimize the entire supply chain. Plus, if you seek strategic oversight, advanced analytics, and long-term optimization to turn your supply chain into a competitive advantage, you should definitely choose a 4PL provider.
Conclusion
A 3PL is like hiring a reliable fulfillment team. A 4PL is like hiring a logistics general contractor. The right choice depends on your business size, complexity, and growth goals.
