What’s the Difference Between a 3PL, a 4PL and a 5PL? 

Last Updated: June 24, 2024

Like many specialized industries, logistics has its own vocabulary. One set of popular logistics terms has been causing significant confusion lately: 3PL vs. 4PL vs. 5PL. Recently, there’s even been talk of 6PLs and 7PLs. (!) With companies continuing to innovate in the logistics space, all of these terms are getting thrown around more than ever, and many people aren’t sure exactly what they mean.

To help you understand the difference between 3PL, 4PL, and 5PL providers—and find the right solution for your business—we’ll walk you through all this terminology. We’ll also discuss the pros and cons of 3PLs, 4PLs, and 5PLs. Finally, we’ll share how the industry is looking at 6PLs and 7PLs, even though those definitions aren’t 100% set in stone yet.

Let’s start with the basics. Once you understand how these terms were originally conceived, you’ll be able to unpack the increasing levels of complexity with ease.

Laying the Foundation: What Does 1PL Mean?

1PL simply means first-party logistics. In this scenario, a company does all of its transportation and logistics in-house. 

1PL Model: When a company handles all of its transportation and logistics.

For example, imagine a company that manufactures OBD2 scanners that tell you why the check engine light on your dashboard has lit up.

Under the 1PL model, that manufacturer has its own in-house truck that an employee drives to pick up the raw materials for the OBD2 scanners. (You can already see how impractical this would be for many businesses!) When the manufacturing of the scanners is complete, the company uses that same truck to deliver them to a reseller who gets them in the hands of consumers.

The Advantage of the 1PL Model

Total control and oversight of all the logistics, including when the manufacturer receives raw materials and when the reseller receives the finished product. 

The Disadvantage of the 1PL Model

It’s time-consuming and perhaps not particularly cost-effective. For example, could that employee’s time be better spent building more scanners, rather than driving around, sourcing parts, and making deliveries? Possibly.

Additionally, in today’s global marketplace, what’s the likelihood of being able to source everything you need to manufacture something like an OBD2 scanner—without needing any assistance from an outside carrier?

That’s Where the 2PL Model Comes In: Second-Party Logistics

To understand a 2PL (second-party) logistics model, take that example from above: a manufacturer of car code scanners. That manufacturer hires a few different carriers to pick up the raw materials and deliver them to the warehouse. Then, they hire a carrier to move the finished product from the manufacturing facility to the reseller. 

2PL Model: When a company hires carriers (a second party) to move their supplies, materials, inventory, etc.

This is a fairly common scenario today. For example, manufacturers use the US Postal Service, UPS, FedEx, or a freight carrier to deliver their parts, raw materials and/or finished products. USPS, UPS, FedEx, or the freight carrier would be that second party in the 2PL model. 

The Advantage of the 2PL Model

That second party—be it the USPS or a freight carrier—can help the manufacturer effectively redirect in-house resources. The manufacturer’s employees could focus on making more scanners or marketing them more effectively to boost sales. In other words, by outsourcing some of its logistics, the manufacturer can zero in on its core competencies.

The Disadvantage of the 2PL Model

The manufacturer is giving up a little bit of control. It has to wait for the carrier to deliver items instead of, for example, driving across town to get the parts immediately.  

Of course, as we mentioned earlier, driving across town isn’t always an option—and it’s not always the best use of time. Either way, whenever you’re relying on a second party, you’re more vulnerable to delays that are out of your control. 

Now that you understand the origin of these foundational terms, let’s layer on the next level of complexity: What are third-party logistics (3PL) providers? 

Understanding Third-Party Logistics (3PL)

Third-party logistics means adding a third entity to your logistics operations. The term was originally coined in the early ’70s.

Since then, the definition of 3PLs had broadened to include companies who offer a range logistics services that may include:

• Managing multiple carriers on your behalf to ship supplies, materials, inventory, etc.
• Warehousing, fulfillment, and storage
• Inventory management
• Packaging or consolidating shipments
• Freight forwarding
• Transportation management

3PL Model: When a company outsources logistics services to a third entity (the 3PL) that handles functions like transportation, warehousing, fulfillment, and more.

Operating under a 3PL model, our OBD2 scanner manufacturer (the first party) may hire a freight forwarder (a third party) to manage moving raw materials from China to the manufacturing location in Long Beach, CA. The forwarder will arrange to have the materials trucked to port in China (with the help of a second party), then work with a steamship line (another second party) to have them loaded onto a ship bound for Long Beach. 

As you can see, it might be helpful to think of a 3PL provider as one who manages other 2PLs. 

3PLs Look to Technology to Optimize Logistics

To more effectively manage complex supply chains, 3PLs are increasingly using technology to manage logistics across all links of the chain. Transportation management systems (TMS), warehouse management systems (WMS), and inventory management systems all provide real-time data that 3PLs use to monitor supply chain health and optimize operations.

With the advent of automation and increasing use of AI, 3PLs have even more tools at their fingertips to streamline logistics for their clients. 

What Is an Asset-Based 3PL

An asset-based 3PL is one that owns its own assets—trucks, warehouses, etc. A non-asset-based 3PL will hire these services out or leverage another company’s assets. 

Hiring an asset-based 3PL has a number of advantages, including the fact that an asset-based 3PL has more control over its delivery fleet and its schedule. If you’re considering hiring a non-asset-based 3PL, make sure to understand how they operate before committing to a long-term contract with them. 

The Advantage of Working with a 3PL

When you choose to work with a 3PL, you get to leverage that 3PL provider’s expertise. In our example above, the 3PL likely has an existing network of relationships that makes moving raw materials from China simpler and more efficient. As a result, the manufacturer can continue to focus on what it does best: making ODB2 scanners, rather than training an employee to learn logistics in China. 

Additionally, outsourcing your warehousing and fulfillment to a 3PL offers you a few upsides: 

• It’s a scalable solution that can easily expand with your needs. Otherwise, you might have to expand your own footprint, permanently increasing your overhead. For smaller businesses, working with a 3PL can be a cost-effective way to grow—or manage seasonal fluctuations in business. 

• If your 3PL invests in cutting-edge technology, partnering with them allows you to leverage real-time data to make better decisions—without making a major investment in a TMS, WMS, etc. 

• As with the rest of your operations, you’ll get to take advantage of that 3PL’s best practices to optimize your logistics all along the supply chain. 

The Disadvantage of Working with a 3PL

You’ll inevitably lose some oversight and control. (You may notice a pattern here!) Additionally, working with a 3PL comes with expenses.  

However, that cost is likely well worth it: 

• You’d potentially be able to redirect internal resources formerly dedicated to logistics to other activities that may be better suited to your team’s expertise. For example, perhaps your fulfillment manager might be better suited to business development. In fact, by leveraging strategic outsourcing, you may actually end up paying less for the services of a 3PL than you would for an in-house team. 

• Additionally, the 3PL you work with may be able to negotiate lower freight rates and/or create efficiencies that would ultimately lower your overall transportation costs. 

Now, let’s move up one more level. 

What Is Fourth-Party Logistics (4PL)?

4PL is a term originally trademarked by the consulting firm Accenture in 1996. Like Kleenex and Xerox, this trademarked term has gone generic. 

Pro Tip: You’ll also hear 4PLs referred to as LLPs (lead logistics providers).

When Accenture coined the term, it defined fourth-party logistics (4PL) as “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.” 

In other words, a 4PL acts as the sole interface between a client and multiple logistics providers so that the entire supply chain is managed by the 4PL. 

4PL Model: A company outsources their entire supply chain to another company that integrates the services of several 3PLs.

In a 4PL model, let’s say that our example manufacturer wants to scale their operation and no longer wants to deal with any of the logistics. The manufacturer contracts with a 4PL provider to take over the day-to-day of managing their supply chain: moving raw materials from various suppliers to the manufacturing facility, transporting finished products to resellers, accepting returns and moving them back to the warehouse, etc. 

Along the way, the 4PL provides services to optimize supply chain activities, using data and technology to measure performance and deliver insights to create new efficiencies. 

Are 4PLs Asset-Based?

In the strict definition of the term, no. 4PLs are not asset-based, in that they don’t own and operate their own fleets or warehouses. Instead, they contract with other providers for these services.

Staying non-asset-based allows a 4PL to remain neutral and unbiased, ensuring that they’ll choose the best providers for their clients.

So What’s the Difference Between a 3PL and a 4PL?

In short, a 3PL is generally more focused on logistics—things like order fulfillment, distribution, and warehousing. When working with a 3PL, an organization will generally maintain at least some control and oversight of its supply chain. In contrast, a 4PL will take over the management of the entire supply chain to optimize operations throughout all its links.

Additionally, while 3PLs can be asset-based, 4PLs, by strict definition are not, which creates even more differentiation between these categories.

The Advantages of Working with a 4PL

Partnering with a 4PL offers the opportunity to focus on what you do best. You’ll be able to scale your operations by focusing on your strengths, while outsourcing operations that aren’t related to core business operations.  

Additionally, with complete oversight of the supply chain, a 4PL is even better positioned to uncover new efficiencies than a 3PL. 

If you partner with a 4PL, you may also open the door to a more strategic relationship. In contrast, some 3PL relationships can feel more transactional in nature, which may mean a missed opportunity to analyze the bigger picture. 

The Disadvantages of Working with a 4PL

With very little involvement in the day-to-day of your logistics, you’ll need to work closely with a 4PL to monitor and ensure alignment. It’s important to communicate your most pressing business goals—such as procurement timelines, customer delivery timelines, or strategic relationships—so that the 4PL can make the right recommendations to meet those goals.. 

Additionally, some companies guard their sourcing and logistics operations closely from competitors. While a non-disclosure and even a non-compete may be part of the agreement with the 4PL, consider any potential exposure in this arena before committing to a partnership with a 4PL.  

Now, let’s take a look at one more level up, at the future of logistics: the 5PL. 

Examining an Emerging Trend: What Is 5th Party Logistics (5PL?)

5PL is a newer concept to the logistics world. As a result, its definition is a little looser than other levels of logistical support. 5PLs often:

• Focus on leveraging technology and big data to create efficiencies.
• Optimize not just supply chains but supply chain networks.
• Maintain a strong eCommerce focus, which can be most useful to companies who don’t have a brick-and-mortar presence.
• Manage other 3PL and 4PL providers.

As international markets and emerging technology continue to impact the logistics industry, keep your eyes out for the methods in which 5PLs innovate within this space.

Summing It Up: What’s the Difference Between 3PL, 4PL, and 5PL Logistics?

At the end of the day, it comes down to how many parties are involved in your logistics and supply chain activities. For example:

• 1PL – The original client, such as a manufacturer

• 2PL – A carrier like UPS or a freight provider, hired by the manufacturer

• 3PL – A logistics provider, hired by the manufacturer, who manages carriers, as well as delivers services like fulfillment, warehousing, and other logistics

• 4PL – A provider that manages not just the logistics, but the entire supply chain

• 5PL – An organization that manages other 3PLs + 4PLs

Keep in mind, though, that some of these terms can be fluid, especially as companies continue to innovate in this space. For example, some 3PLs may offer services similar to 4PLs, and the services 5PLs offer will differ from organization to organization. As you look for a provider, focus less on how they define themselves and more on whether they deliver the services you’re looking for.

What’s Next? 6PLs and Even 7PLs

As companies continue to offer new levels of service in supply chain management and logistics, expect to see new terms pop up, such as 6PLs, 7PLs, and so forth.

What Services Does a 6PL Deliver?

The definition for this one isn’t set in stone quite yet. Some people use the term 6PL to refer to companies who leverage artificial intelligence (AI) to optimize supply chain activities. Others suggest that 6PLs will focus on sustainability solutions within the logistics industry.

This term is one to watch as its meaning continues to develop.

What About 7PLs?

Like 6PL, the definition of what constitutes a 7PL is still fluctuating a bit. The term was originally coined to represent the combination of a 3PL and a 4PL. In other words, 3PL + 4PL = 7PL. The idea behind this combination was to provide a completely outsourced solution for logistics and supply chain management. In some ways, this might sound like the function of a 4PL, right?

The difference is that the strict definition of a 4PL stipulates that 4PLs own no assets of their own. In a 7PL solution, the company has 3PL capabilities, and therefore owns assets it can leverage.

As we mentioned above, The industry has its textbook definitions, and service providers don’t always conform strictly to those same definitions. If you’re looking for someone to manage your entire supply chain, consider organizations that both call themselves a 4PL and a 7PL, Then, choose the one that compare who delivers a solution that’s closer to what you want.

3PL, 4PL, or 5PL: What Does Your Company Need?

At the end of the day, choosing your logistics provider depends heavily on how much you want to do in-house and how much you want to outsource. Outsourcing can allow you to focus more closely on your core competencies and leverage outside expertise. However, it also means you lose some control and oversight. You’ll need to choose a partner carefully to ensure they align with your business goals.

Your best bet is to do your homework. Talk to several providers. Schedule discovery calls to ask them how they can best add value to your business. Examine the costs against your bottom line—and against potential savings. By weighing all the options, you’ll find the right balance for your business.

Want some help outsourcing your logistics? We tailor logistics solutions to fit our clients’ specific requirements. Schedule a complimentary consultation with us , and we’ll show you how we can help you focus on your core competencies and leverage our expertise to create new efficiencies, saving you time and money.