What is 1PL, 2PL, 3PL, 4PL and 5PL? Types of logistics operators

Today the role of a logistics operator is key in the supply chain as they help logistics companies to improve their productivity according to their different needs.

Their functions can vary greatly depending on the type of operator, and among the activities that can be delegated to different types of logistics operators are the following:

• Warehousing of goods
• Stock management and procurement
• Logistics transport and physical distribution of products
• FTL and LTL freight forwarding
• Order picking
• Reverse logistics

Throughout this post we will explain in detail how many logistics operators exist, what their role is in the transport sector and the main advantages of each one. Let’s get started!

Types of logistics operators

The function of a logistics operator is to cover different services that a logistics company cannot or is not interested in performing. These services or tasks are different depending on the type of operator and can range from transport and warehousing to distribution.

The term “PL”, also known as logistics providers or Party Logistics, refers to the degree of outsourcing of logistics. The higher the number, the higher the level of outsourcing.

1PL or First Party Logistics

First party logistics operators are manufacturing or production companies that choose not to outsource logistics and manage their own warehousing and shipping needs to the end customer without relying on anyone else.

They are usually small companies that are self-sufficient in terms of logistics and have their own fleet of trucks, so they are responsible for the purchase and maintenance of the transport fleet, as well as the management of drivers.

2PL or Second Party Logistics

2PL or Second Party Logistics operators are those that only perform shipping and warehousing tasks. The operators are responsible for providing the means of transport and warehousing.

The 2PL logistics operator works on a broader scope than the primary operator, but still offers standard services, mainly on a national level.

The logistics management of resources, the coordination of the transport fleet and the preparation of customer orders remains in the hands of the contracting companies, as the suppliers only facilitate the use of their resources, without taking responsibility for managing them.

3PL or Third Party Logistics

Third party logistics or 3PL operators cover all 3 stages of the supply chain: shipping, transport and handling.

The 3PL operator acts as an intermediary between the manufacturer and its customers, providing not only transport and warehousing services in its facilities, but also using its fleet of vehicles, organising transport operations, traceability of goods and warehouse operations such as order picking, inventory control, cross-docking and reverse logistics. The 3PL logistics provider optimises the contracting company’s supply chain management, integrating the above-mentioned tasks and relieving the company from managing these processes.

A very common approach nowadays among logistics companies is to outsource some of the services to other operators to improve their productivity, whereby they can perform one, two or all three services.

These operators offer more personalised services according to the needs of the manufacturer and its customers, as they are usually long-term agreements between the contracting company and the logistics operator, allowing for a progressive optimisation of the supply chain.

4PL or Fourth Party Logistics

4PL operators, also known as LLP or Lead Logistics Provider, offer a process management consultancy service to their clients in addition to performing the services of tertiary operators.

This is a type of provider that fully controls the manufacturer’s supply chain, taking charge of designing and optimising the efficiency of the supply chain to the maximum thanks to its experience and technological capacity as a logistics operator, and providing consultancy services, planning, management, localisation and integration of new technologies. Under this premise, the 4PL operator does not carry out physical transport and storage tasks, but these are delegated to the 3PL operator.

In 4PL processes, the contracting company’s dependence on the logistics operator is much greater than with other types of supplier, which is why they tend to have long-term contracts.

5PL or Fifth Party Logistics

5PL logistics is basically an enhanced version of 4PL that combines full consultancy with 3PL services and is characterised by having sufficient capacity to manage multiple supply chains on a global level.

5PL logistics operators are the most advanced logistics outsourcing, as they manage multiple global supply chains. Their services allow the companies that hire them to leave 100% of the logistics and supply chain in their hands.

For 5PL logistics to be fully optimised, they must have a perfect relationship between the operations to be executed. Although they control all operations (from manufacturing processes to reverse logistics), they outsource most intermediate tasks to 4PL and 3PL operators.

By coordinating the shipping needs of several operators, they achieve better service and cost savings, thereby improving productivity, reducing time and costs and enabling them to negotiate favourable rates from carriers.

From 6PL to 10PL and all the above logistics

The usual classification of logistics operators usually ranges from 1PL to 5PL, although there are also 6PL, 7PL, 8PL and higher logistics operators that are not very common.

The 6PL operators are, logically, an improvement of the 5PL. In this case, 6PL operators use technology (Artificial Intelligence or AI) to their advantage to improve resources in the supply chain.

As for the rest, as they are less common, we will only give a brief overview:

• 7PL: has the strategic management experience of a 4PL provider with the added bonus of having physical assets of a 3PL, such as a warehouse.
• 8PL: super committee created to analyse the results of the competition and propose solutions.
• 9PL: Multiple sources managed to meet last-mile delivery requirements.
• 10PL: the supply chain becomes self-aware and runs itself.

Conclusion

Hiring logistics operators has long since become common practice. The increasing complexity of logistics processes and the rise of e-commerce businesses have meant that most companies need the services of specialised intermediaries to delegate functions over their own supply chains.

Deciding which type of logistics company or operator to work with depends on the characteristics and needs of the client. However, what is clear to us is that by choosing a good logistics operator you will simplify and save time during your logistics process, thereby increasing your profitability and satisfying your customers.