We use cookies to provide you with a better experience. By continuing to browse the site you are agreeing to our use of cookies in accordance with our Cookie Policy.
  • INDUSTRY PRESS ROOM
  • SUBMISSIONS
  • MEDIA FILE
  • Create Account
  • Sign In
  • Sign Out
  • My Account
Free Newsletters
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
  • STRATEGY
  • GLOBAL
  • LOGISTICS
  • MANUFACTURING
  • PROCUREMENT
  • VIDEO
    • News & Exclusives
    • Viewer Contributed
    • CSCMP EDGE 2022 Startup Alley
    • Upload your video
  • PODCAST ETC
    • Podcast
    • White Papers
    • Webcasts
    • Events
    • Blogs
      • Reflections
      • SCQ Forum
    • Mobile Apps
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
  • STRATEGY
  • GLOBAL
  • LOGISTICS
  • MANUFACTURING
  • PROCUREMENT
  • VIDEO
    • News & Exclusives
    • Viewer Contributed
    • CSCMP EDGE 2022 Startup Alley
    • Upload your video
  • PODCAST ETC
    • Podcast
    • White Papers
    • Webcasts
    • Events
    • Blogs
      • Reflections
      • SCQ Forum
    • Mobile Apps
Home » 3PLs, 4PLs, and beyond …
THIRD-PARTY LOGISTICS

3PLs, 4PLs, and beyond …

Logistics service providers expand and transform their offerings in response to changing needs and demands from shippers and other customers.

2020 SOL issue
August 19, 2020
C. John Langley Jr.
No Comments

The markets that logistics service providers (LSPs) serve are changing rapidly. (For a summary of some of the key trends and changes, see the associated sidebar.) In response, both users and providers have been on a relentless drive for innovation and for expansion of available logistics capabilities. As a result, third-party logistics providers (3PL) and fourth-party logistics providers (4PL) have been making significant additions to the range and scope of services that they offer to shippers and other customers.

The evolving roles of LSPs

As the term “supply chain” continues to advance, there have been noticeable changes in many of the terminologies that are used to define various types of logistics service providers. Some of the most widely recognized of these are summarized below.

It is generally accepted that the term “third-party logistics provider” came into being in the 1970s and 1980s. It’s not a coincidence that this timeframe coincides with the legislated deregulation of several transportation sectors in the United States, such as trucking (less-than-truckload and truckload), rail, and air. The deregulated business environment expanded opportunities for logistics service providers to become more market- and customer-focused and created more incentives for LSPs to craft service offerings that better fit their customers’ logistics and supply chain needs.

In response to customer requests and in pursuit of new market opportunities, 3PLs embarked on expansions of their business models beyond what may have been the more limited province of asset-based services. While there are still some identifiable “pure-play” 3PLs, most of today’s 3PL organizations represent an outgrowth and expansion of logistics services from more traditional providers of asset-based logistics services. A quick internet search will validate the large numbers of organizations that operate in the 3PL category. New entrants continue to emerge from former logistics divisions of shipper organizations, wholesalers and distributors, IT organizations, and various international enterprises, to name just a few.

In 1996, Accenture invented and trademarked the term “fourth-party logistics” (4PL) provider to describe “a supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.” Many of these 4PLs are extensions of more traditional LSP organizations, while others have evolved from consulting organizations, firms specializing in data management and analytics, and former logistics divisions of shipper organizations.

In comparison with 3PLs, it is interesting to note that an internet search for 4PL organizations does not turn up much in the way of organized or comprehensive listings of primary participants in this sector. A logical explanation is that this is due to the significant breadth and diversity of the types of services available in general from 4PLs such as lead logistics provider (LLP), consulting/advisory services, advanced IT services, risk management, “control tower” services, and others. 

LLP responsibilities are particularly interesting as they require 4PLs to use their high levels of visibility, real-time information, communication abilities, and broad knowledge to align 3PLs, customers, and service providers. A 4PL not only draws on the data it collects itself, it also can draw on data gathered from other supply chain partners. The visibility that is created from that data plays a crucial role in allowing customers and 4PLs to provide seamless supply chain services, manage exceptions, and remove costs and inefficiencies from the supply chain.

Now, some logistics service providers are expanding their offerings to offer the following innovative capabilities: 

  • Develop and implement best possible supply chains or networks,
  • Plan, design, and implement complete logistics solutions,
  • Manage networks of supply chains,
  • Provide linkages to e-business,
  • Implement logistics solutions and technologies, and 
  • Aggregate demand from 3PLs into more efficient volumes for lower rates.

These innovations and offerings are frequently accompanied by the introduction of a newer term: “5PL.” At face value, these example 5PL capabilities may appear to be similar to those that may be ascribed to many 4PLs. So, a logical next question is: What exactly is a 5PL, and how does it differ from a 3PL and a 4PL? More generally, where in the lexicon of LSPs does the 5PL exist, and how is it unique and different from other types of LSPs? Or, is it perhaps too soon to expect a more succinct and widely agreed upon definition of a 5PL?

The future evolution of LSPs also will be impacted by the current trend toward thinking of supply chains as “ecosystems” instead of linear systems or processes. (See Figure 1.) Essentially, supply chains are evolving into complex international networks that include interlinked companies that interact and collaborate with each other to ultimately create value for their end-user customers or consumers. In addition to including traditional supply chain participants such as suppliers, manufacturers, and distributors, these ecosystems are characterized by the alignment and convergence of digital and physical flows via the internet of things, sensing devices, blockchain, and overall digitization of the supply chain. As this new and innovative context for supply chain continues to gain acceptance, there will be significant opportunities for LSPs to respond and participate accordingly.

Evolution of supply chain management
[Figure 1] Evolution of supply chain management
Enlarge this image

Keeping up with changing times

Logistics service providers and their clients are facing some very significant changes in their supply chain environments. Just a few of those include:

•     “Blurring” of definitions. Over time, the distinctions between terms such as less-than-truckload (LTL), truckload (TL), and parcel have blurred or, in some instances, disappeared. In the past, these terms were suitable descriptors of specific types of “pure-play” service providers, but today most organizations have materially broadened the scope of their service offerings.

•      Asset- vs. nonasset-based services. Historically, the predominant model for LSPs was the “asset-based” model where the provider served its customers through use of its own assets and services. In recent decades, however, there has been significant growth and development of “nonasset-based” LSPs that rely on relationships with capable asset-based providers to serve their customers. Even though there are a growing number of products that have become digitized or otherwise electronically transformed (such as books, music, software, and 3D-printed parts and products), most supply chains still depend on capable asset-based services to manage the logistical flows of physical products.

•      Greatly enhanced supply chain technologies. Supply chain practices have been greatly impacted by newer technologies such as cloud-based solutions, software-as-a-service (SaaS) platforms, advanced analytics, and 5G broadband networks. Findings from annual 3PL studies conducted by Penn State, Infosys, and Penske confirm that shippers overwhelmingly agree that information technologies are necessary elements of 3PL expertise.

•      The “Amazon effect.” While there are many ways to define this term, it is clear that the presence of Amazon and the overall growth of the omnichannel phenomenon have had disruptive impacts on more traditional supply chains. In turn, this has created a need for individual LSPs to reconsider their operating strategies and to make appropriate changes.

•      COVID-19. Regrettably, any discussion of the future of supply chains and the roles of 3PLs and 4PLs must consider the impacts of COVID-19. As the effects of this pandemic have become significantly intertwined with global economic and political issues, it is certain that there will be long-lasting and likely fundamental changes ahead for supply chains.

Third-Party Logistics
  • Related Articles

    Ten ways the manufacturing supply chain will transform itself in 2016 (and beyond)

    Softeon Identifies Market Opportunities for 3PLs Offering Distributed Order Management Solutions

    Record Number of Carriers, Brokers and 3PLs Qualify for FourKites’ 11th Premier Carrier List

John langley
C. John Langley Jr. (johnlangley11@gmail.com), Ph.D., is a professor at Penn State University’s Smeal College of Business and the Department of Supply Chain and Information Systems, and founder of the “Annual Third-Party Logistics Study.”

Recent Articles by C. John Langley Jr.

Three critical success capabilities

Sustainability, ESG, and 3PL-customer relationships

You must login or register in order to post a comment.

Report Abusive Comment

Most Popular Articles

  • Forecasts call for freight rate slumps in 2023

  • Projected U.S. recession in early 2023 will soften freight market

  • Inflation drops again as interest rate hikes hit home, NRF says

  • How to avoid the next crisis: A new approach to supply chain agility

  • New Jersey truck fleet says Freightliner tractors will deliver safety as well as freight

Featured Video

20221107korber large vs

Enhancing Customer Experience with Your Supply Chain Strategy

Viewer Contributed
With the rise of e-commerce, many businesses have had to transform their warehouses to handle online orders in addition to regularly scheduled inventory shipments. This means warehouses need more information than ever before to ensure they can meet customers' needs. As a result, companies need to select warehouse...

FEATURED WHITE PAPERS

  • Guide to Pallet Rack Safety

  • 3PLs: Complete Orders Faster with Flexible Automation

  • A shipper's guide to navigating post-pandemic holiday freight

  • THE NEW WAY TO WAREHOUSE: 4 Innovations in Automation & Robotics to Boost Warehouse Productivity

View More

Subscribe to Supply Chain Quarterly

Get Your Subscription
  • SUBSCRIBE
  • E-NEWSLETTERS
  • ADVERTISING
  • CUSTOMER CARE
  • CONTACT
  • ABOUT
  • STAFF
  • PRIVACY POLICY

Copyright ©2023. All Rights ReservedDesign, CMS, Hosting & Web Development :: ePublishing