Source: J-P Rodrigue & CPCS.
A third-party logistics provider (3PL) is an asset based company that offers logistics and supply chain management services to its customers. It commonly owns and manages distribution centers and transport modes. A fourth-party logistics provider (4PL) integrates the resources of producers, retailers and third-party logistics providers in view to build a system-wide improvement in supply chain management. They are non-asset based meaning that they mainly provide organizational expertise. However, about 75% of all the 3PLs are also offering 4PLs services. The main factors behind the increasing role of 3PLs and 4PLs are:
- The international division of production associated with globalization helped set a global network of manufacturing activities, implying that producers and consumers tend to have an acute geographical separation requiring complex transportation services.
- A increasing focus of manufacturers and retailers on their core business (known as core competencies) and sub-contracting activities such as logistics where they have less expertise. The goal is to promote the respective specializations in production and distribution.
- Better utilization of transportation assets and resulting economies of scale. 3PLs can make better use of transportation assets by balancing the needs of multiple client shippers across transportation and distribution functions, locations, etc. (e.g. developing networks to maximize backhaul).
- Productivity gains in supply chain management in terms of costs and reliability that can be derived from the managerial and information technology expertise provided by 3/4PL.
- Offshoring and outsourcing resulted in longer and more complex supply chains in which several segments of the transport chain are taking place in environments unfamiliar to the outsourcing company.
- 3/4PLs are more prone to implement novel supply chain management practices requiring a higher expertise on material flows such as transloading, crossdocking and shipment tracking.
- A general trend towards deregulation permitting a higher level of interaction between transportation modes. These interactions rely on complex transport services.