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Understanding the Differences Between 3PL, 4PL, and 5PL

Image of Gary G.
Gary G.

Most online sellers don’t get into the ecommerce industry as a backdoor to a career in logistics. They do digital sales because they want to build an online storefront that provides customers with great products. 

 

All the “ins and outs” of warehousing, packaging, and shipping don’t excite them, but they’re still necessary steps to become a successful ecommerce brand. That’s why so many sellers partner with logistics companies to get that work done.

 

Every product sold by an ecommerce brand needs to make its way into the customer’s hand. Someway, somehow, that’s the end goal, and the more products you sell, the more complicated this can get. 

 

Logistics companies are not one-size-fits-all. They offer different levels of services depending on the partnering company’s needs. In fact, there are three primary models: Third party (3PL), fourth party (4PL), and fifth party logistics (5PL). Each option relieves online businesses from the logistical burdens embedded within the ecommerce industry, but there are subtle differences to understand about each one, too. 

 

We want to provide you with a basic comparison of each model so you can make the most informed choice for your online business. 

 

What is Third Party Logistics (3PL)?

 

Third party logistics providers take over the basic logistical needs from a business. For online sellers, this means the 3PL provider handles everything from basic shipping to handling international customs. 

 

Some 3PL providers will also provide services for tracking and tracing, enabling the ecommerce brand or their customers to view the status of the delivery. Others include minor analytics and insight into the order fulfillment like delivery or fulfillment time, but they don’t get much more granular than that. Their primary focus is to make sure that the product gets safely delivered in a reasonable time without having to burden the seller. 

 

In this way, 3PL providers function as a relay-person in the race to get the product into the hands of the customer. The online business hands the baton over to the 3PL provider once the order has been placed, and they run it to the finish line. After the sale, the seller’s job is effectively done, and the 3PL provider takes care of things like warehousing, inventory management, and freighting. For sellers that ship internationally, many 3PL providers offer air and ocean freight services as well. 

 

3PL providers vary on whether or not they own the assets they use. Those that don’t lease equipment – haulers, for example – from a different company and manage those items internally. It shouldn’t make much of a difference for the selling company in the end. 

 

Amazon FBA is a commonly recognized 3PL provider. Partner-sellers get access to Amazon’s warehouses, fleet of shipping vehicles, and impeccable delivery times. That being said, there are plenty of other 3PL providers as well. Many of the big names – like UPS, XPO Logistics, and Accenture – extend beyond 3PL services and include 4PL and 5PL offerings, too.   

 

What is Fourth Party Logistics (4PL)?

 

Fourth party logistics includes many of the same offerings of 3PL providers while adding in ways to optimize the supply chain. The scope of 4PL providers usually contains some strategizing or consulting services rather than strictly fulfilling orders. They help companies look for ways to improve their logistics. It’s like they not only take the baton from the company, they also give advice and guidance for how best to handle the passing.

 

To make this happen, most 4PL providers don’t own their assets. Instead, they operate within a network of vehicles and warehouses, providing their clients with greater flexibility as orders get fulfilled. The provider looks to make each supply chain operate more efficiently by finding the best options for each specific circumstance. 

 

Because of this, online sellers will hand over a great deal of trust to 4PL providers. They effectively take over the entire supply chain and make decisions based on their expertise. That decision-making power separates 4PLs (and 5PLs) from 3PLs because 3PL providers just fulfill the needs stated by the partnering company. 4PL and, as we’ll see below, 5PL providers use their resources to make informed decisions that can save their clients time and money. 

 

Handing over the reins like this can be rewarding for online businesses that want nothing to do with logistics, but for some, it can feel daunting to have someone else oversee their supply chain. That’s why it’s usually utilized by businesses with complex supply chains. 

 

What is Fifth Party Logistics (5PL)?

 

The most recent progression in logistics services is fifth party logistics. The newness of the concept makes it vulnerable to various interpretations, but you can still nail down some consensus. We’ll stick with providing a basic overview here.  

 

At the core, 5PL providers take over the entire supply chain management process of a company. They plan, organize, and implement. They look for ways to optimize. They basically serve as a full-scale, in-house logistics team for their clients, and they have a small but major difference that helps them stand out from 3PL and 4PL providers:

 

Technology and big data. 

 

5PL providers take logistics into the digital age, using software, technology, and automation to improve processes across multiple supply chains. This has a big impact for the ecommerce industry specifically because of the various channels and supply chains to manage. 5PL providers – who do not own their logistic assets – take the entire supply chain network into consideration, providing a level of efficiency that online businesses have begun to really value. 

 

By tracking and analyzing a variety of datasets, 5PL providers can make more informed decisions that optimize the entire logistics operation of their partnering companies. 

 

Which Option Works Best for Your Business?

 

The nuanced differences make it difficult to distinguish between 3PL, 4PL, and 5PL services, especially since many big-named logistics companies accommodate for the different offerings. Each choice has really turned into different levels of offerings within logistics companies rather than entirely different business models. 

 

Even within the logistics industry, the line gets blurry. Rock Managan, the president of RK Logistics Group, has said that from a service provider perspective, there really is no difference.” The different categories “just describe the relationship between the members and partners in your supply chain.” 

 

For online businesses, this means learning which option best meets your business needs. To start, consider some of these factors:

  • Your budget
  • The time and resources you can dedicate to logistics
  • The overall complexity of your supply chain
  • The number of channels you sell through
  • The level of control you’re willing to hand over
  • The readiness of your techstack

Using the Right Tech to Set Up Logistics

 

Optimizing your logistics will always include having easy access to important data. Analytics provides you with actionable insights that can help lead you and your logistics provider to success, whether you’re using 3PL, 4PL, or 5PL services. 

 

StoreAutomator is an e-commerce solution for channel aggregation that provides this sort of data. Using sophisticated APIs, the app seamlessly integrates directly with 3PL or 4PL providers and can stretch across multiple 3PL providers if needed.

 

If you’re thinking about how a 5PL provider can be more useful, the platform can function as one of the go-to end-point data creators that 5PL providers need to optimize their logistics operations and supply chain network. 

 

When your 5PL provider wants to minimize the cost for you or their other clients, they can use provided features to optimize ecommerce listings for better search rankings, optimize prices, and inventory allocations across channels to increase revenue and profits. They can also use the ERP integration our app offers to transfer order data for further fulfillment operation optimizations using a Warehouse Management System or other 3PL solutions.

 

If you’re interested in learning more about how StoreAutomator can optimize your logistics and supply chain operations, we’d love to chat more with you. Request a free product demo and we’ll walk through the platform together.


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