What does 1PL, 2PL, 3PL, 4PL and 5PL mean?

What does PL stand for?

The term PL stands for Party Logistics and refers to the level of logistics outsourcing: the higher the number in front of the letters PL, the higher the level of outsourcing. At one end of the PL spectrum, we find the 1PL where the manufacturer does not outsource logistics and delivers its product directly to the end customer. At the other end of the spectrum, we find the 5PL, where a logistics operator manages a network of supply chains for the client.

The PL can also be used as a classification of logistics service providers. The classification is then based on the services to be provided. The different types of PL and their advantages can be described as follows.

What is 1PL?

1PL or First Party Logistics is when a person or company storing their goods themselves and transporting them to the end user. The 1PL is mostly applied within small production companies with local distribution. These companies are therefore completely self-sufficient in their logistics services.

What is 2PL?

2PL or Second Party Logistics is often the first step in outsourcing logistics tasks including transport. Companies that offer 2PL services can be considered a logistics operator since, in addition to transport, they are also responsible for the storage of goods. A 2PL logistics operator already works on a slightly broader scale than a 1PL operator but will mainly offer standard services. Usually, these services take place within the company's own country. 

What is 3PL?

3PL or Third Party Logistics consists of outsourcing a large part or even the entire logistics process of a company to an external logistics operator. The 3PL acts as an intermediary between the client and its customers, organising transport activities and storage facilities. 3PL also includes preparing orders, cross-docking, inventory management and return logistics. Product orders and invoicing remain with the client.

What is 4PL?

With 4PL or Fourth Party Logistics, supply chain management is provided. Think for example of consulting, planning, management, or warehousing. A 4PL operator does not carry out physical transport or warehouse activities, these are outsourced to a 3PL operator. A 4PL operator therefore manages the client's entire supply chain and takes the initiative in designing and optimising the supply chain.  In addition, the 4PL operator is responsible for engaging the 3PL operators who will perform the physical logistics tasks. In 4PL projects, the client is depending more on the logistics operator than, for example, in 3PL. Therefore, these are usually long-term contracts.

The differences between 3PL and 4PL

The main differences between 3PL and 4PL based on the different services:

Benefits of 3PL and 4PL: Outsourcing Logistics

• Time saving: saving time by outsourcing the entire management of the supply chain to an expert operator. 
• Money saving: a saving of money as used resources such as trucks and storage facilities are owned by 3PL operators.
• Expansion: easier expansion into foreign markets without a further need to invest in infrastructure or knowledge of those countries. 
• Knowledge: specialisation of 4PL operators in specific industrial sectors. The client does not need to have this knowledge itself, or invest further in this specific knowledge.

What is 5PL?

The term 5PL or Fifth Party Logistics is still a new logistics term. A 5PL operator combines the transport and logistics services of a 3PL provider with the supply chain optimalisation of a 4PL provider. The 5PL operator takes this one step further and manages an entire network of supply chains for the client. Here, the focus is on the use of the latest technologies, which is why 5PL is often found in the world of E-business.

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