Shipping companies need logistic providers to fulfill their logistic needs and maintain the efficiency of their supply chains. 3PL and 4PL, or third-party and fourth-party logistics, are significant for the smooth transition of the supply chain. Third-party logistics mainly provide services for standard transportation and logistics that are more suitable to outsource, while fourth-party logistics providers take these services to another level, handling the more integral processes and including them in the company’s core practices, such as strategic planning.  

In this blog, we will discuss the role of 3PL and 4PL in the supply chain, their difference, benefits, and future trends to help you choose the best logistic providers for your shipping business. 

What is 3PL in the supply chain?

Third-party logistics providers generally outsource the services related to the e-commerce logistics process to a third-party business, including inventory management, warehousing, and fulfillment. The supply chain integration of the warehousing processes and transportation services combines to form third-party logistics. The services of the 3PLs help businesses focus on many other aspects of their business while leaving the logistics cycle to them. They mainly handle the logistic aspect of supply from start to end. 

Why use 3PL in supply chain management?

In supply chain management, third-party logistics plays a vital role, so let’s explore some of the roles of 3PL in supply chain management in the context of logistic outsourcing in brief: 

1. Focuses on core competencies: Collaborating with 3PL helps companies focus on their core tasks despite the other non-core yet essential tasks. Employing 3PL logistic experience will help you smoothen the processes of your business and also let you avoid the requirement of allocating integral resources to the staff, order completion, transportation, and warehouse space.
2. Cost-efficient and less time-consuming: Outsourcing order fulfillment to third-party logistics will save time and money. Despite investing in full-fledged warehouses or infrastructures, trucks, container tracking technology and facilities, and staff,  3PL providers facilitate services with limited resources yet manage the supply chain efficiently.
3. Gain access to industry experts: A 3PL logistic company will offer you a proper plan or strategy if you want to expand globally, as they have employees who deal with international trade practices daily. They will provide information such as how your product will be perceived, pricing patterns, and economic rules and regulations. You must follow compliances, transportation documents, and import and export procedures to help grow your business globally. 
4. Adapt to fluctuations in the market: Third-party logistics providers help you expand or contract your business according to market trends. You can analyze the supply and demand of resources, due to which an increase or decrease in supply or demand will not significantly impact your business. Most 3PL providers invest their money in technology to change their methodologies per the latest technological advancements in logistics. 
5. Expand your business: 3PL providers offer cost-efficient services that will help your business grow with minimum investment. With 3PL providers, supply chain collaboration will help you expand your business globally by providing access to previously unused resources.  

How do 3PL providers work?

The 3PL providers help overcome the logistics challenges and work as follows. Let’s take a look at their processes in brief: 

1. First, they must receive the shipments and ensure the delivered goods are in proper condition. 
2. They have to store goods efficiently in a warehouse to be easily accessed and retrieved. 
3. Tracing the levels of products, supervising the movement of stocks, and creating proper records for inventory management. 
4. Now, they have to receive, monitor, process, and prepare orders for shipping. 
5. After that, they have to synchronize with carriers, arrange transportation, and ship products according to their scheduled delivery times, ensuring logistic coordination.
6. After that, they have to handle product returns, process refunds, and ensure that the products return to inventory as a part of reverse logistics.  
7. Last but not least, they have to report the arrival and exit of the product with their real-time reporting to the assignee. 

What is 4PL in logistics?

The fourth-party logistics, the lead logistics provider, is the enterprise that outsources logistics management and other integral supply chain processes. They manage the 3PLs, optimize operations, including technologies, and offer all the logistic solutions required for shipping. Fourth-party logistics provide detailed strategic solutions for your shipping requirements. They ensure improved visibility, transparency, and authority and serve as a central point of communication to enhance supply chain performance and attain the desired results. 

What role does 4PL play in global supply chains?

4PL plays a very crucial role in global supply chain management. 4PL providers  contribute to maintaining the efficiency of the supply chain process; let’s discuss their role in the supply chain: 

1. Transparency: 4PL offers advanced technologies and data analytics systems throughout the process. This end-to-end visibility helps monitor inventory, logistics performance, and real-time shipment pace. This can help companies make better, more informed decisions that minimize risks from end to end supply chain. 
2. Partnership with suppliers: Partnering with suppliers is crucial to managing supply chain networks. 4PL providers help establish efficient communication and cooperation between companies and suppliers. This strong partnership helps build a robust supply chain with streamlined processes and enhanced reliability. 
3. Better network formation: 4PLs optimize the design of supply chain networks. Through their comprehensive analysis, they discover the most suitable trade routes, modes of transportation, and storage locations for your cargo. This optimized network design is cost-efficient and operation-effective. 
4. Risk management: The modern supply chain faces sudden natural disasters, accidents, and thefts; 4PLs can easily manage these risks with contingency plans. Diversifying supply sources ensures the business’s operation even in unexpected circumstances. 

How does 4PL work? 

The fourth-party logistics works as per the following processes: 

1. Transportation: A 4PL has to manage the container transportation of goods from one place to another, mostly from manufacturers to the warehouses owned by 3PL companies. 
2. Strategic decisions: A 4PL must choose a suitable mode of transportation and route according to the logistical requirement. 
3. Inventory management: The 4PLs must manage the inventory by employing technologies that centralize the tracking, like inventory management software. 
4. Supply chain optimization: Implementing technological innovations, identifying loopholes, correcting them, and using cost-efficient methods leads to supply chain optimization.
5. Managing performance: They supervise all the work, from container port loading to unloading. They also monitor supply chian KPIs (key performance indexes) that give clients an overview of performance. 

What are the differences between 3PL and 4PL?

Understanding the complex logistic process is challenging, but 3PL and 4PL simplify the process with their services. They are both different terms yet interconnected. Let’s understand their difference to avoid confusion: 

1. Scope of services: 3PL and 4PL provide logistics and supply chain management services. However, 3PL provides services for logistics and transportation only, while 4PL provides services for all the internal supply chain management processes. They ensure the end-to-end connection of every process, including strategy and planning. 
2. Client involvement: Client involvement is at different levels in 3PL and 4PL. In 3PL, the client is directly involved in logistics and transportation management, while in 4PL, the client is involved but not to that extent. 4PLs handle all the work in the supply chain, so they focus on more core tasks. 
3.  Extent of authority: 3PL and 4PL work to improve the efficiency of the supply chain, but they have different extents of control over the operations. As 3PLs are limited to transportation and logistics, they have less control over supply chain management, while 4PLs handle all the supply chain processes and have complete control over the journey. 
4. Involvement of technology: Both providers employ technology in their operations; the only difference is the process. 3PL uses technology for logistic operations, such as implementing a warehouse management system for inventory control. Meanwhile, 4PL uses technology to maintain supply chain visibility and transparency, optimize, and partner with other operations or teammates by utilizing IoT sensors for predictive analysis and real-time process data. 
5. Relationships: Third-party logistic providers’ relationships are more transactional, with their clients mainly focusing on logistics operations. Fourth-party relations with their clients are more strategic, as they work more closely, designing the whole process and involving them in its implementation. 

Future of 3PL and 4PL in the supply chain

The logistics and shipping industry has been experiencing many changes in the last few years, and with the pace at which the market is evolving, there will be remarkable changes. 3PL and 4PL  are not just part of the shipping and logistics industry but are essential executors. Let’s discuss some aspects of changes in 3PL and 4PL in the future: 

1. Sustainable logistics: Sustainable logistics is now the top priority of most customers as logistics contributes approximately 80% of the company’s greenhouse emissions. If you look ahead, you can start with electric delivery fleets, recycled packaging, and carbon offsets. Both 3PL and 4PL must work to make the supply chain process more sustainable, not harming the environment at any stage. 
2. Technological advancements: Technology has been limited in the logistics and shipping industry until now. However, technological advancements will be greater in the future. Future trends in logistics include the use of electric vehicles, advanced sensors, tracking options, and growing transportation tactics. 
3. Integrating modes of transportation: Logistics plans to integrate logistic services among road-rail and road-coastal transportation for cargo delivery. Government investments in rail transportation and less polluting aspects add to integration. Intermodal transportation is becoming superior in logistics, offering flexibility and allowing products to reach desired locations quickly at affordable rates. 

The two logistics providers, 3PL and 4PL, are crucial in supply chain management. You, as a shipper and the buyer, can choose the best party logistics based on your requirements and criteria. Third-party logistics would be better if you only want services for your logistics and transportation. But if you want to manage the whole supply chain management process, you should go for fourth-party logistics. So, focus on your needs, consider future trends, and then make a precise decision regarding your logistics. 

LOTUS Containers, the shipping container suppliers, can help you with your port logistics. Their collaboration with more than 300 ports facilitates your business’s loading, unloading, and logistics.