The 2020 calendar year has brought about a slew of major changes in a multitude of ways, and the online retail and logistics world is certainly no exception. The COVID-19 pandemic in particular has forever altered online shopping behaviors and how consumers use eCommerce and digital solutions.
Following the onset of the pandemic, it’s reported that more than half of consumers now shop online more frequently than they did before the pandemic, as part of a larger shift to a more digital world. Even grocery store eCommerce has seen an increase this year, with expected growth from $35 billion in 2019 to over $250 billion in 2025.
It’s time to meet customers where they are; online. If—like other retailers—you’ve seen an uptick in online sales and it’s time to consider help from an outside party to handle your transportation and logistics and inventory management, create new, strategic goals, and keep up with a digital world, you may be weighing the differences between a third-party logistics (3PL) provider and a fourth-party logistics (4PL) provider. What do you need to know about each of these logistics models? How would each fit into your supply chain and logistics process?
What is 3PL?
A third-party logistics model manages and supervises transportation and logistics services for part, or even all of the supply chain management functions. This means that a 3PL can handle everything from warehousing to delivery, including:
- Picking and packing
- Inventory forecasting
- Order fulfillment
- Freight forwarding
There are all kinds of advantages to using a 3PL provider—the main one being that online retailers can focus on other critical aspects of their business like product development, sales, and marketing while the 3PL provider handles their transportation and logistics needs. There are more resources free to pursue business growth. What other benefits does choosing a 3PL provider offer?
- 3PL providers can leverage lower, more competitive shipping rates
- The ability to scale services up and down as needed in a cost-effective manner
- Offering better customer experiences including expedited shipping,
- A chance to expand and reach wider markets, including international markets
- Lowered risk of shipping delays and other unforeseen circumstances
- Cost savings in the warehouse through inventory management, forecasting, and more optimized inventory levels
What is 4PL?
How does fourth-party logistics vary from 3PL? A 4PL provider, also referred to as a lead logistics provider or an LLP, takes all the same services offered by a 3PL provider and ramps up their offerings by managing resources, technology, infrastructure, and even handling of external 3PLs to build fully-formed supply chain solutions. A 4PL provider is a single point of contact for logistics, warehouse management, consulting, and planning.
Besides the services offered by a 3PL provider, 4PL services include:
- Logistics strategy
- Analytics of spending on transportation, analysis, capacity utilization, and carrier performance
- Consulting and planning
- Inventory planning
- Weighing various logistics models
- Coordinating a wider retail supplier base
- Managing reverse logistics, returns, and refurbishment
Essentially, a fourth-party logistics provider is an independent party that’s accountable for integrating and assembling resources, technology, and services within their organization and with external services and organizations from a single interface; all aspects of the supply chain.
A 4PL provider helps by taking over the entire logistics process for your eCommerce business and offers consultation to help you achieve strategic goals in tandem with their ongoing operational support services. They can help you avoid costly subscription eCommerce mistakes, develop a successful recurring revenue business strategy, and find ways to improve your business processes from end to end.
The Key Differences Between 3PL and 4PL
When examining the major differences between 3PL and 4PL providers, there’s not a clear-cut definition of the differences between the two. Sure, a 4PL offers more services than a 3PL and can be thought of as 3PL+ or an enhanced 3PL. What are some of the general differences?
Online retailers will choose 3PL for transportation, warehousing, and distribution, while they may select a 4PL for full management of all supply chain operations including carriers, warehouses, and reverse logistics, among other consulting services, for full end-to-end support.
One major difference? Many 3PLs can’t handle reverse logistics efficiently; they just don’t have the resources available. When consistent repairs or returns are necessary, online stores and eCommerce subscription services turn to 4PLs. Some—but not all—3PLs can handle reverse logistics, but not always. Those that understand subscription marketing success will be able to work closely with you to give unbeatable customer care.
Which One Should You Choose?
Which type of logistics provider is right for you—the third-party logistics provider or the fourth-party provider? It depends on what level of service you require.
Are you looking to pick and choose from a select menu of services? You can actually select different 3PLs to handle each step in your supply and logistics chain, for warehousing, shipping and transportation, and distribution. This is also a strong choice for smaller companies who need support, but aren’t ready to invest in more hands-on support from a 4PL provider.
If you are looking for more internal management and a single interface in dealing with multiple service providers across the entire supply chain, as well as ongoing support from a trusted advisor, and a full-bodied reverse logistics service, the strongest option for you is a 4PL.
Do you need a logistics provider that understands a subscription model? What about a provider that understands scaling subscription commerce? These are all important questions to ask before you choose a 3PL or 4PL provider.
Is the choice always so cut-and-dry? Not necessarily. Sometimes, online stores find 3PL who offer more and more services, expanding into a full-fledged 4PL service and their single point of contact, occasionally making the journey from 3PL to 4PL more of a sliding scale than a stepping stone. Along the way, the company has developed a certain level of trust in the now-4PL provider and increased the kinds of services they receive, and with all the benefits they are getting, they may find it hard to shift back to working from a straight-3PL model.
Some 3PLs offer more than others and will provide more analytics support than others, managing things like your subscription retail data for a better understanding of how you’re performing, pinpointing opportunities for growth. It truly all depends on what you’re looking for.
How OceanX Can Help
Not all 3PLs are the same. With modern, technology-first solutions, direct-to-consumer fulfillment, ongoing analytics, and individualized customer service at-scale, OceanX’s modern 3PL solutions offer all the services you need to provide exceptional customer care to retain customers for a long, long time. We understand the psychology of subscription and the power of personalization. We’ll actively take a vested interest in your health or beauty brand to take your company to the next level.
Life is too short to spend it all fulfilling orders yourself. You shouldn’t have to pack, fill, and ship orders all on your own. You need a smart solution that will free you up to focus on building the business you’ve always imagined. Direct-to-consumer logistics and subscription box service logistics services are how we got our start; they’re what we do best.
Want to learn more? Download our informative guide today!