March 11, 2022
An Overview of the Differences Between 1PL-5PL Providers
This blog post was originally published by Deliverr, which is now Flexport. The content has been adjusted to fit the Flexport brand voice and tone, but all other information remains unchanged. With the merging of Deliverr’s services (DTC fulfillment, B2B distribution, and Last Mile delivery) into Flexport’s existing international freight and technology services, we’re now able to provide merchants with true end-to-end logistics solutions spanning from the factory floor to the customer’s door.
You’ve likely heard of 3PL logistics (3rd-party logistics) before and know it as the link between business manufacturing operations and customers. However, did you know that there are also 1PL, 2PL, 4PL, and 5PL providers?
All of these providers offer various logistics solutions. But if you have no idea what these providers do, you’re not alone. The differences can be confusing, so we’re here to explain the main distinctions so you can decide which (if any) are right for your business.
First, here is a quick pyramid to help you understand the differences between 1PL-5PL providers:
1PL: First-Party Logistics
First-party logistics (1PL) is the most simple of the providers. Rather than outsourcing the work to other companies, 1PL only involves two parties: you and your customers. You ship the goods to your customer, and there are no middlemen in the process (unlike al other logistic tiers). 1PL refers to the shipping of goods and nothing else in the eCommerce processes.
2PL: Second-Party Logistics
Second-party logistics (2PL) is another provider that you hire to be responsible for the transportation of your product(s). An example of a 2PL company is the airline that operates the planes on which your goods are traveling or the business that owns the ships on which your goods are traveling. A 2PL provider’s business mainly exists as a means of transportation and is not involved in any other aspect of your eCommerce logistics.
3PL: Third-Party Logistics
Third-party logistics (3PL) involves outsourcing your supply chain logistics and operations to another company. 3PL companies often handle:
- Returns (reverse logistics)
- Kitting and customization
- FTL and LTL freight shipping
Depending on which 3PL provider you choose, they may offer even more services to add value. For example, they might offer inventory management to make working with their company even more desirable to you.
It’s no secret that handling supply chain operations is challenging, endless work, and mistakes throughout the process can be costly. But 3PL providers have been offering these services for decades, and they optimize the process to make you as much revenue as possible. They make the process simpler, quicker, and more cost-effective for you and help mitigate mistakes.
Many successful eCommerce businesses use 3PL companies because then they can focus on other aspects of the business and not worry about supply chain management.
3PL providers can help eCommerce retailers in any industry, but the following professions can especially benefit from using them:
- Trade show transportation
- Industrial machinery
- Restaurant equipment and supplies
- Aerospace industry
3PL thrives due to increasing tracking technology, including radio frequency identification (RFID), internet of things (IoT) technology, and global positioning system (GPS).
4PL: Fourth-Party Logistics
A fourth-party logistics (4PL) provider offers everything that a 3PL offers, plus more. 4PL logistics providers manage all aspects of the supply chain. So beyond physical logistics, warehousing, and shipping, 4PL providers offer services related to information technology (IT), finance, and procurement.
It may seem like 3PL and 4PL are the same, but 4PL providers typically provide more services, and the services that they do provide are more in-depth. For example, their tracking technologies are often much more detailed than 3PL providers. It’s a higher-level service that typically costs more, but the value outweighs the cost.
Here are some of the services that 4PL providers offer that 3PL providers do not:
- Project management
- Service advice
- A single point of contact
- Logistics strategy and analytics
If you only need someone to help with logistics, a 3PL provider is a great option. But if you need more in-depth analytics along with a provider to help you strategize to improve your business, a 4PL provider is your best bet.
5PL: Fifth-Party Logistics
If you haven’t heard of a fifth-party logistics (5PL) provider, you aren’t alone; 5PL is a relatively new term. 5PL includes a fully-integrated logistics solution to encompass the whole supply chain from beginning to end. A 5PL provider negotiates rates with multiple companies throughout each step of the supply chain.
Although it might seem confusing that 5PL providers involve many different partners, it allows you to let the individual companies focus on what they do best. A 5PL provider shouldn’t make your business operations confusing because they utilize high-quality technology that allows transparency throughout the entire supply chain process.
How to Choose the Best Provider for Your Business
Like everything else in business (and in life), each provider comes with pros and cons. What will work best for your company depends on your current business needs. Here are some tips to help you choose between the five options:
Choose a 1PL provider:
If you’re looking for a simple system that doesn’t require a lot of integration or networking and if you want full control over the system, then a 1PL provider is what you need. 1PL providers are typically best for less mature businesses, so this type of provider may only be best for your company until you hit a certain level of growth. At that point, you may need to move on to a more sophisticated provider.
Choose a 2PL provider:
If you’re looking for a simple system that has more capabilities as a 1PL, but less than a 3PL and 4PL. Focus on a 2PL provider if you mainly need help with transporting goods.
Choose a 3PL provider:
If your company is too mature for 1PL or 2PL providers, and you need more help throughout the whole warehousing and supply chain process. However, when choosing 3PL providers, be prepared to lose some control over the processes.
Choose a 4PL provider:
If your company is too mature for 1PL or 2PL providers, and you’re willing to let go of control when it comes to your supply chain processes, then a 4PL provider is right for you. Also, choose a 4PL provider if you need more help with strategy and analytics.
Choose a 5PL provider:
If you’re looking for complete integration and management of your supply chain, then a 5PL provider is perfect for you. These providers negotiate rates with other businesses, which saves you the time and headache and leaves you with extra time to devote to areas of your business that require your expertise.
Looking for a 3PL provider?
Now that you understand the differences between 1PL, 2PL, 3PL, 4PL, and 5PL providers, most business owners decide that a 3PL provider makes the most sense. If that sounds like you, consider choosing Flexport!
Flexport is a leading direct-to-consumer 3PL solution, helping brands not only save on fulfillment costs but to increase sales as well. We power brands’ real-world customer experience with affordable next-day delivery in every major U.S. metro, industry-leading on-time delivery, and services like custom packaging that delight customers.
With a network powered by sophisticated machine-learning technology to optimize inventory movement to 50+ warehouses across the U.S., we are the easiest 3PL solution to you and cater to a wide variety of fulfillment needs—all while offering simple, transparent, and affordable pricing.
If you’re ready to accelerate your sales, get started with Flexport today!
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