What are 1PL, 2PL, 3PL, and 4PL logistics in supply chain management?

24 April 2024

Ane Mærsk arriving at Tanjung Pelepas PTP in Malaysia

A well-oiled logistics system is the backbone of successful businesses. But with various options and acronyms, it’s easy to get confused and derailed. Which logistics service is right for me?

This is where you need to understand different types of logistics providers: 1PL to 4PL. From managing your own transportation to outsourcing your entire supply chain, here’s a breakdown of the four main logistics models.

What is party logistics (PL)?

PL or party logistics refers to the levels of outsourcing you use for your logistics operations. It’s categorised into 1PL, 2PL, 3PL and 4PL. Each represents an increasing degree of responsibility and service given by the logistics service provider (LSP). The higher the number, the greater the level of outsourcing.

I have an in-house logistics team. Why would I outsource my operations?

While you may have an effective in-house logistics department, it takes away time and focus from your primary operations. If you outsource whole or parts of your logistics processes to the right provider, you can:

Simplify your supply chain
Overcome visibility challenges
Lower your business costs
Have better scalability and flexibility
Get access to latest tech and expertise

But, it can be confusing to differentiate the various levels. Let’s help you make that decision:

1PL logistics: The DIY approach

Control: The company retains full control over its logistics operations.
Investment: Needs significant investment in equipment, personnel, and infrastructure.
Example: A manufacturer that owns and operates its own fleet of trucks to deliver its products to customers.

First-party logistics (1PL) refers to companies that handle their own logistics operations internally. This includes everything from transportation and warehousing to inventory management, last-mile order fulfilment, and customer service. While it offers control and flexibility, 1PL requires major investments as a company. As your business grows, you may encounter scalability issues with 1PL.

Usually, smaller businesses or those with low-volume/regional shipments opt for the 1PL logistics model.

2PL logistics: The transportation experts

Control: Business retains some control over its logistics operations but outsources the execution of specific tasks, usually transportation.
Investment: Company’s expenses are reduced, as it only needs to manage its own warehouses and inventory.
Example: A retailer that contracts with a trucking company to transport its goods from a supplier to its distribution centres.

Second-party logistics (2PL) involves outsourcing transportation services to a dedicated carrier. This could be a trucking, airline, or shipping company. They specialise in moving goods efficiently, freeing up your resources to focus on core business activities. While 2PL has limited scope and doesn’t provide end-to-end logistics solutions, it offers access to specialised expertise and resources.

It is preferred by companies with predictable shipping volumes but limited infrastructure for transport or warehousing.

3PL logistics: The one-stop logistics shop

Control: The company gives some control over its operations to the 3PL but retains responsibility for setting the strategic direction.
Investment: The company’s expenses on fixed assets are further reduced, as it relies on the 3PL’s infrastructure.
Example: An e-commerce company that uses a 3PL to store, pack, and ship its products to customers.

Third-party logistics (3PL) is the most common type of logistics model. 3PLs are an extension of your business, managing your entire supply chain from end to end. It offers services beyond just transportation — including warehousing, order fulfilment, customs services, and value-added services like packaging and labelling. While 3PL provides economies of scale, it comes at a higher cost than managing logistics internally.

This logistics model is great for all businesses that need to streamline their operations and optimise their supply chains comprehensively.

READ MORE: Difference between 3PL and 4PL

4PL logistics: The orchestrator & integrator

Control: The company gives significant control over the supply chain to the 4PL while retaining only the overall responsibility for its supply chain performance.
Investment: The company’s fixed costs are minimal, as the 4PL provider takes on most of the responsibility and costs of managing your supply chain.
Example: An automotive company that uses a 4PL to manage its global supply chain, from sourcing raw materials and manufacturing to delivering finished vehicles to dealers.

Fourth-party logistics (4PL) takes things to the next level. They don’t own any physical assets but act as strategic consultants — designing and managing complex supply chains across multiple 3PLs and other partners on your behalf. They use technology and data analytics to optimise your logistics network, increasing efficiency, reducing costs, and enhancing visibility. Gartner says that shippers are actively seeking out 4PL logistics service providers to make more integrated and value-driven partnerships for the long term.

4PL best suits large companies with global operations and highly complex supply chains.

Learn more about 4PL from Martin Holme, Global Head of Lead Logistics at Maersk.

What about 5PL?

Fifth-party logistics (5PL) is still in its early stages and is building on the 4PL concepts, but it holds great potential for those looking to stay ahead of the curve with innovative logistics solutions for complex projects. 5PL providers act as an extension of the company’s operations, managing the supply chain and other aspects of business processes.

How to choose the right logistics model for your business?

The best level of logistics support for your business depends on several factors, including your company size, industry, shipping volume, and budgets. Here are some key considerations:

Complexity of your supply chain: The more complex your supply chain, the more likely you’ll need the expertise of a 3PL or 4PL provider.
Volume of your shipments: If you have high-volume shipments, you can negotiate better rates with a 2PL or 3PL provider.
Need for expertise: If you lack in-house logistics expertise, a 3PL or 4PL provider can give valuable guidance and support.
Budgets and available resources: 1PL is the most cost-effective option but requires the most fixed asset investment. 3PL and 4PL can be more expensive but save you money in the long run through improved efficiency and cost-savings.

Understand the different levels of logistics models and prioritise your needs carefully.

FEATURE	1PL	2PL	3PL	4PL
FEATURE Analogy	1PL Booking your own flights, hotels, and activities independently; self-driven, time-consuming	2PL Booking a package tour with pre-arranged transportation and accommodation; convenient, less flexibility	3PL Hiring a travel agent to tailor a customised itinerary and handle bookings; personalised experience, expert guidance	4PL Consulting a travel expert to optimise your entire trip based on your interests and budgets; maximised efficiency, unique experiences
FEATURE Control	1PL High	2PL Moderate	3PL Low	4PL Low
FEATURE Level of Outsourcing	1PL None (Internal coordination)	2PL Transportation or warehousing	3PL End-to-end (multiple logistics functions)	4PL Entire supply chain management
FEATURE Expertise & Resources	1PL Limited (internal)	2PL Specialised in transportation	3PL Broader logistics knowledge and network	4PL Complete supply chain optimisation
FEATURE Scalability	1PL Limited	2PL Moderate	3PL High	4PL Very High
FEATURE Costs	1PL Low to moderate	2PL Moderate, might vary based on negotiated rates	3PL Moderate to high	4PL Highest
FEATURE Pros	1PL Full control, deep product knowledge, cost-effective for small businesses	2PL Access to special expertise, cost-savings through negotiated rates	3PL Convenience, one-stop-shop, scalability, and better cost optimisation	4PL Enhanced visibility, better control, optimised flow, and reduced costs
FEATURE Cons	1PL Limited resources, lack of expertise, scalability issues	2PL Limited scope with less control, reliance on provider	3PL Higher costs and loss of some control	4PL Complexity, expensive, requires significant resources