Comparing 3PL and 4PL: Determining the Optimal Solution for Your Needs

The terms Third Party Logistics (3PL) and Fourth Party Logistics (4PL) are often thrown around in the eCommerce industry, but their differences, advantages, and which one to employ for your fulfillment needs can be confusing. Let’s unravel the distinctions, similarities, and merits of both 3PLs and 4PLs.

What is a Third Party Logistics Company (3PL)?

A Third Party Logistics Company, or 3PL, is an external entity that eCommerce businesses engage to handle logistics tasks such as inventory management, warehouse storage, and order fulfillment. Instead of shouldering these responsibilities in-house, businesses delegate them to 3PLs.

3PLs are not a monolith. They differ in specializations, services, and reach. Some focus on product transportation, while others are proficient in warehousing or distribution, even extending to freight auditing, bookkeeping, and inventory management. Their service scope can range from basic to comprehensive, including returns management, specialized packaging, and supporting product kits and bundles. Depending on your needs, choosing the right 3PL could result in numerous advantages.

The efficiencies achieved through scale are one of the main benefits 3PLs offer. Because they usually serve multiple businesses, they can cost-effectively manage large warehouses or transportation fleets, resulting in better rates for services. Their teams can also streamline operations for faster and smoother processes. Collaborating with one or more 3PLs can help you reduce the need for in-house staff, deal with carrier companies for freight optimization, and avoid delays due to centralized inventory, all contributing to lower storage and fulfillment costs and increased order capacity.

What is a Fourth Party Logistics Company (4PL)?

Although 4PLs are logistics companies, they are not quite similar to 3PLs. Instead of directly providing storage, packing, and fulfillment services, a 4PL acts more like a logistics broker. It is a software interface connecting you to suitable warehouses and 3PLs that meet your fulfillment requirements, without actually owning any assets.

In essence, a 4PL functions as a control tower that monitors efficiency, costs, and resources. They strive to optimize your entire operations, making your fulfillment process as efficient as possible. Some well-known 4PLs include Deliverr and Ware2Go, which collaborate with 3PLs for fulfillment and develop the software needed to manage order processes.

3PL or 4PL: Which One is Best Suited for You?

The principal distinction between a 3PL and a 4PL lies in their business model.

A 3PL usually owns or leases the resources it provides to eCommerce businesses. When you engage a 3PL, you’re essentially leasing a segment of their service. They have closer control over their pricing and services, which can provide eCommerce businesses with more bargaining power. However, you’ll be vying for space and deals with other businesses.

In contrast, a 4PL is primarily a software management company aiming to streamline your supply chain. They can partner with 3PL providers, optimizing product movement and distribution across multiple 3PLs and warehouses to create the most efficient operations process. However, dealing with a 4PL can limit your ability to negotiate with individual 3PL providers.

Just like a traditional bed-and-breakfast (3PL) versus AirBnB (4PL) scenario, while a bed-and-breakfast might negotiate rates to fill empty rooms, AirBnB doesn’t have the same flexibility since individual vendors determine their offerings.

In essence, both 3PLs and 4PLs can be advantageous options, and your choice will depend on your business objectives. If you require assistance integrating your 3PL or 4PL with your other tools, Connect3pl is available to help.